Closing Projects or Phases

To close a project or phase, you must finalise all activities and transfer the completed or cancelled work to the appropriate people

Main outputs include

Final product, service, or result transition

Organisational process asset updates

Strategic Planning and Project Selection

Figure 1.1 Strategic planning questions and their outcomes

Figure 4.3 A cause and effect diagram for determining the causes of defective components

Project Initiation

Initiating a project includes recognising and starting a new project or project phase

Some organisations use a pre-initiation phase, while others include items like developing a business case as part of initiation

The main goal is to formally select and start off projects

Key outputs include:

Assigning the project manager

Identifying key stakeholders

Completing a business case

Completing a project charter and getting signatures on it

As part of strategic planning

Organisations:

Identify potential projects

Use realistic methods to select which projects to work on

Formalise project initiation

Where does the Project idea come from?

Business

Business Vision

Strategic processes

Competitive pressure

Changes in regulations

New Technology

Strategic opportunity

Exploratory prototype

Existing system

Extension

Re-working

Organisations should follow a documented consistent planning process for selecting IT projects

1. First, develop an IT strategic plan in support of the organisation’s overall strategic plan

2. Then perform a business area analysis

3. Next, define potential projects, build the business case

4. Finally, select IT projects and assign resources

Four Key Issues Needing Answers for All Technology Projects

1. Business Value

2. Technology

3. Cost/Benefit questions

4. Risk

Methods for Selecting Projects

In every organisation, there are always more projects than available time and resources to implement them

Very important to follow a repeatable and complete process for selecting IT projects, to get the right mix (portfolio) for the organisation

Business case – a document composed of a set of project characteristics (costs, benefits, risk, etc.) that aid organisation decision makers in deciding what projects to develop

Suggested contents of a business case

Introduction/background

Business objective

Current situation and problem/opportunity statement

Critical assumptions/constraints

Analysis of options and recommendations

Preliminary project requirements

Budget estimate and financial analysis

Schedule estimate

Potential risks

Selecting the Wrong Projects

There are five major reasons why organisations choose the wrong projects:

bias and errors in judgment,

failure to establish an effective framework for project portfolio management,

lack of the right metrics for valuing projects,

inability to assess and value risk, and

failure to identify project portfolios on the “efficient frontier”

What Went Wrong?

The Surrey police force began looking into replacing its criminal intelligence system in 2005, but the project was finally cancelled in 2013, and the old system was replaced with a much less expensive one used by thirteen other forces

The person in charge of the project would not take responsibility for it

An audit report said the project was beyond their in-house capabilities and experience

Organisations must make the right staffing/outsourcing decisions

Strategic Planning and Project Selection

Strategic planning involves determining long-term objectives, predicting future trends, and projecting the need for new products and services

Organisations often perform a SWOT analysis

analysing Strengths, Weaknesses, Opportunities, and Threats

As part of strategic planning, organisations

identify potential projects

use realistic methods to select which projects to work on

formalize project initiation by issuing a project charter

Best Practice

A 2013 survey identified companies most admired for their ability to apply IT-related business capabilities for competitive advantage

Best practices of these companies include:

Customer-driven IT is essential

IT can enable branding and customer recruitment

Keep improving

Methods for Selecting Projects

There are usually more projects than available time and resources to implement them

Methods for selecting projects include:

focusing on broad organizational needs

categorising information technology projects

performing net present value or other financial analyses

using a weighted scoring model

implementing a balanced scorecard

Focusing on Broad Organisational Needs

It is often difficult to provide strong justification for many IT projects, but everyone agrees they have a high value

“It is better to measure gold roughly than to count pennies precisely”

Three important criteria for projects:

There is a need for the project

There are funds available

There’s a strong will to make the project succeed

Categorizing IT Projects

1. It is whether the project addresses

a problem

an opportunity, or

a directive

2. it is how long it will take to do and when it is needed

3. it is the overall priority of the project

Methods for Selecting Projects

There are usually more projects than available time and resources to implement them

Methods for selecting projects include:

Focusing on broad organisational needs

Categorising information technology projects

Performing net present value or other financial analyses

Using a weighted scoring model

Implementing a balanced scorecard

Evaluating Project Proposals Cost-benefit analysis

Compare the expected costs of the development & operation of the system with the benefits of the new system

Assessment is based on whether the estimated costs are exceeded by the estimated income and other benefits

Is the project the best option?

Financial Analysis of Projects

Financial considerations are often an important consideration in selecting projects

3 primary methods for determining the projected financial value of projects:

Net present value (NPV) analysis

Return on investment (ROI)

Payback analysis

Net Present Value Analysis

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

Projects with a positive NPV should be considered if financial value is a key standard

The higher the NPV, the better

Meaning of NPV

Present value of a project, if positive, can be interpreted as the potential increase in consumption made possible by the project, valued in today’s terms

It doesn’t necessarily mean that the money is immediately available

Can use discount table to calculate NPV

Discount rate table
	5% discount	6% discount	8% discount	10% discount	12% discount	15% discount
Year 1	0.9524	0.9434	0.9091	0.9091	0.8929	0.88696
Year 2	0.9070	0.8900	0.8573	0.8264	0.7972	0.7561
Year 3	0.8638	0.8396	0.7938	0.7513	0.7118	0.6575
Year 4	0.8227	0.7921	0.7350	0.6830	0.6355	0.5718
Year 5	0.7835	0.7473	0.6806	0.6209	0.5674	0.4972
Year 6	0.7462	0.7050	0.6302	0.5645	0.5066	0.4323
Year 7	0.7107	0.6651	0.5835	0.5132	0.4523	0.3759
Year 8	0.6768	0.6274	0.5403	0.4665	0.4039	0.3269
Year 9	0.6446	0.5919	0.5002	0.4241	0.3606	0.2843
Year 10	0.6139	0.5584	0.4632	0.3855	0.3220	0.2472

NPV

Assuming a 10% discount rate, the NPV for project 1 would be calculated

Year	Project 1 cash flow (£)	Discount factor at 10%	Discounted cash flow (£)(multiply columns 2 and 3)
0	-100,000	1.0000	-100,000
1	10,000	0.9091	9,091
2	10,000	0.8264	8,264
3	10,000	0.7513	7,513
4	20,000	0.6830	13,660
5	100,000	0.6209	62,090
Net Profit	£50,000		(Add the values in the column) NPV £618

$$ \ NPV = -C_O \frac{C_1}{1+r}+\frac{C_2}{(1+r)^2}+...+\frac{C_T}{(1+r)^T}\ $$

-C₀ = Initial Investment

C = Cash Flow

r = Discount Rate

T = Time

Net Present Value(NPV) is a formula used to determine the present value of an investment by the discounted sum of all cash flows received from the project. The formula for the discounted sum of all cash flows can be rewritten as

$$ NPV = -C_0 + \sum_{i=1}^{T} \frac{C_i}{(1+r)^i}$$

Example of Net Present Value

To provide an example of Net Present Value, consider company Shoes For You's who is determining whether they should invest in a new project. Shoes for You's will expect to invest $500,000 for the development of their new product. The company estimates that the first year cash flow will be $200,000, the second year cash flow will be $300,000, and the third year cash flow to be $200,000. The expected return of 10% is used as the discount rate.

The following table provides each year's cash flow and the present value of each cash flow.

Year	Cash Flow	Present Value
0	-$500,000	-$500,000
1	$200,000	$181,818.18
2	$300,000	$247,933.88
3	$200,000	$150,262.96

Net Present Value = $80,015.02

The net present value of this example can be shown in the formula

When solving for the NPV of the formula, this new project would be estimated to be a valuable venture

$$ NPV = -$500,000 + \frac{$200,000}{1.10}+\frac{$300,000}{1.10^2}+\frac{$200,000}{1.10^3}$$

Discount rate: 10%

Data source: http://www.financeformulas.net/Net_Present_Value.html

NPV Calculations

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

Determine the discount rate (check with your organisation on what to use)

Calculate the NPV

Notes: Some organisations consider the investment year as year 0, while others start in year 1. Some people entered costs as negative numbers, while others do not. Check with your organisation for their preferences

Payback Period

The payback period is the amount of time it will take to get back, in the form of net cash inflows, the total dollars invested in a project

Payback occurs when the net cumulative discounted benefits equals the costs

Track the net cash flow across each year to determine the year that net benefits overtake net costs

Normally the project with the shortest payback period will be chosen (to minimise the time the project is in debt)

Many organisations want IT projects to have a fairly short payback period

Is simple to calculate

Not sensitive to small forecasting errors

Disadvantages

Ignores overall profitability of the project

Ignores any income/expenditure once the project has broken even

Payback is usually used with other measures

Company may set max payback time for all projects (e.g. 12 months)

Cost-benefit techniques

Project cash flow projections (in £) for 4 projects

Year	Project 1	Project 2	Project 3	Project 4
0	-100,000	-1 million	-100,000	-120,000
1	10,000	200,000	30,000	30,000
2	10,000	200,000	30,000	30,000
3	10,000	200,000	30,000	30,000
4	20,000	200,000	30,000	30,000
5	100,000	300,000	30,000	75,000
Net profit	50,000	100,000	50,000	75,000

Calculate payback period for each project

Return on investment (ROI)

Provides a way of comparing the net profitability to the investment required

ROI provides the percentage return over the life of the project

Use a formula to calculate:

ROI = average annual profit × 100

total investment

Many organisations have a required rate of return or minimum acceptable rate of return on investment for projects

ROI

Provides a simple and easy to calculate measure of return on capital

Disadvantages

Takes no account of the timing of the cash flows

Tempting to compare the return with interest rates

If you must choose one project over another – choose the project with the highest ROI

Project 1: Return on investment (ROI)

Project 2: Return on investment (ROI)

Project 3: Return on investment (ROI)

Project 4: Return on investment (ROI)

Internal Rate of Return (IRR)

One of the more sophisticated capital budgeting techniques and also more difficult to calculate

The IRR is the discount rate at which NPV is zero

Or the Discount rate where the present value of the cash inflows exactly equals the initial investment. IRR is the discount rate when NPV = 0

Most companies that use this technique have a minimum IRR that you must meet.

Basically trial and error changing the discount rate until NPV becomes zero

Attempts to provide a profitability measure as a percentage return directly comparable with interest rates

For example,

A project with an estimated IRR of 10% would be worthwhile if the capital could be borrowed for less than 10% or if the capital could not be invested elsewhere for a return > than 10%

The IRR is calculated as that % discount rate that would produce an NPV of zero

Can be calculated using a spreadsheet program

Manually it can be calculated by trial and error or estimated

Provides only an approximate value

This may be sufficient to dismiss a project if it has a small IRR OR make a more precise evaluation

Estimating the IRR for project 1

Selecting a Portfolio of Projects

We have reviewed several methods for evaluating individual projects….

Now lets move on to selecting our entire portfolio by comparing projects against each other using a weighted scoring model

Weighted Scoring Model (WSM)

The Weighted Scoring Model (WSM) is a culmination of all of the other models discussed

It is used to evaluate all projects on as equal a basis as is humanly possible. It attempts to remove human bias in the project selection process

The criterion used to compare projects differs from one organisation to another and may differ between types and classes of projects within the same organisation

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

Identify criteria important to the project selection process

Assign weights (percentages) to each criterion so they add up to 100%

Assign scores to each criterion for each project

Multiply the scores by the weights and get the total weighted scores

The higher the weighted score, the better

Process to Create WSM

1. First identify criteria important to the project selection process

2. Then assign weights (percentages) to each criterion so they add up to 100%

3. Then assign scores to each criterion for each project

4. Multiply the scores by the weights and get the total weighted scores

Implementing a Balanced Scorecard

Drs. Robert Kaplan and David Norton developed this approach to help select and manage projects that align with business strategy

A balanced scorecard

is a methodology that converts an organization’s value drivers, such as customer service, innovation, operational efficiency, and financial performance, to a series of defined metrics

See www.balancedscorecard.org for more information

Developing a Project Charter

After deciding what project to work on, it is important to let the rest of the organisation know

A project charter is a document that formally recognizes the existence of a project and provides direction on the project’s objectives and management

Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project; a signed charter is a key output of project integration management

Inputs for Developing a Project Charter

A project statement of work

A business case

Agreements

Enterprise environmental factors

Organisational process assets, which include formal and informal plans, policies, procedures, guidelines, information systems, financial systems, management systems, lessons learned, and historical information

Contents of Project Charter

Project Title

Start/projected end date

Budget information

Project manager

Project objectives

Approach

Roles and responsibilities

What the Winners Do

"The winners clearly spell out what needs to be done in a project, by whom, when, and how."

For this they use an integrated toolbox, including PM tools, methods, and techniques…If a scheduling template is developed and used over and over, it becomes a repeatable action that leads to higher productivity and lower uncertainty.

Sure, using scheduling templates is neither a breakthrough nor a feat. But laggards exhibited almost no use of the templates.

*Milosevic, Dragan and And Ozbay. “Delivering Projects: What the Winners Do.” Proceedings of the Project Management Institute Annual Seminars & Symposium (November 2001).

Stakeholder Analysis

Identifies the influence and interests of the various stakeholders and documents their needs, wants, and expectations

These needs and wants form the basis of the scope statement

The influence and interests section of the analysis can make the PM job much easier and lead to more successful projects

Stakeholder Analysis Process

1. Identify all potential stakeholders

2. Determine interests, expectations, and influence for each

3. Build a stakeholder assessment matrix

4. Analyse appropriate stakeholder approach strategies and update the matrix

5. Update throughout the project

Developing a Project Management Plan

A project management plan is a document used to coordinate all project planning documents and help guide a project’s execution and control

Plans created in the other knowledge areas are subsidiary parts of the overall project management plan

Common Elements of a Project Management Plan

Introduction or overview of the project

Description of how the project is organised

Management and technical processes used on the project

Work to be done, schedule, and budget information

Table 4-2. Sample Contents for a Software Project

Major Section Headings	Section Topics
Overview	Purpose, scope, and objectives; assumptions and constraints; project deliverables; schedule and budget summary; evolution of the plan
Project Organisation	External interfaces; internal structure; roles and responsibilities
Managerial Process Plan	Start-up plans (estimation, staffing, resource acquisition, and project staff training plans); work plan(work activities, schedule, resource, and budget allocation); control plan; risk management plan; closeout plan
Technical Process Plans	Process model; methods, tools, and techniques; infrastructure plan; product acceptance plan
Supporting Process Plans	Configuration management plan; verification and validation plan; documentation plan; quality assurance plan; reviews and audits; problem resolution plan; suncontractor management plan; process improvement plan

IEEE Standard 1058-1998.

Directing and Managing Project Work

Involves managing and performing the work described in the project management plan

The majority of time and money is usually spent on execution

The application area of the project directly affects project execution because the products of the project are produced during execution

Coordinating Planning and Execution

Project planning and execution are intertwined and inseparable activities

Those who will do the work should help to plan the work

Project managers must solicit input from the team to develop realistic plans

Providing Leadership and a Supportive Culture

Project managers must lead by example to demonstrate the importance of creating and then following good project plans

Organisational culture can help project execution by

providing guidelines and templates

tracking performance based on plans

Project managers may still need to break the rules to meet project goals, and senior managers must support those actions

What Went Right?

2015 PMI report found that only 12 percent of organisations were considered to be high performers

Percentage remained unchanged in past few years

Organisations must make major cultural changes to improve

Capitalising on Product, Business, and Application Area Knowledge

It is often helpful for IT project managers to have prior technical experience

On small projects, the project manager may be required to perform some of the technical work or mentor team members to complete the projects

On large projects, the project manager must understand the business and application area of the project

Project Execution Tools and Techniques

Expert judgement: Experts can help project managers and their teams make many decisions related to project execution

Meetings: Meetings allow people to develop relationships, pick up on important body language or tone of voice, and have a dialogue to help resolve problems.

Project management information systems: There are hundreds of project management software products available on the market today, and many organizations are moving toward powerful enterprise project management systems that are accessible via the Internet

See the What Went Right? example of Kuala Lumpur’s Integrated Transport Information System on p. 169

Using Software to Assist in Project Integration Management

Several types of software can be used to assist in project integration management

Documents can be created with word processing software

Presentations are created with presentation software

Tracking can be done with spreadsheets or databases

Communication software can facilitate communications

Project management software can pull everything together and show detailed and summarised information

Kick-Off Meeting

With the completion of the stakeholder analysis and the signing of the project charter, it’s time to schedule and conduct the kickoff meeting

First step, use the stakeholder analysis to make sure to invite the right people

Everyone at the start of the project hears the same message

Get agreement from everyone on Project Charter

Summary

Project integration management involves coordinating all of the other knowledge areas throughout a project’s life cycle

Main processes include

Develop the project charter

Develop the project management plan

Direct and manage project execution

Monitor and control project work

Close the project or phase

Agile methods: An approach to managing projects that includes an iterative workflow and incremental delivery of software in short iterations

Artifact: A useful object created by people

balanced scorecard  A methodology that converts an organisation’s value drivers to a series of defined metrics

baseline  The approved project management plan plus approved changes

Burndown chart: A chart that shows the cumulative work remaining in a sprint on a day-by-day basis

business service management (BSM) tools  Tools that help track the execution of business process flows and expose how the state of supporting IT systems and resources affects end-to-end business process performance in real time

capitalisation rate  The rate used in discounting future cash flow; also called the discount rate or opportunity cost of capital

cash flow  Benefits minus costs or income minus expenses

change control board (CCB)  A formal group of people responsible for approving or rejecting changes on a project

change control system  A formal, documented process that describes when and how official project documents may be changed

Closing processes: Formalizing acceptance of the project or project phase and ending it efficiently

configuration management  A process that ensures that the descriptions of a project’s products are correct and complete

cost of capital  The return available by investing capital elsewhere

Daily Scrum: A short meeting in which the team shares progress and challenges

directives  New requirements imposed by management, government, or some external influence

discount factor  A multiplier for each year based on the discount rate and year

discount rate  The rate used in discounting future cash flow; also called the capitalisation rate or opportunity cost of capital

Executing processes: Coordinating people and other resources to carry out the project plans and create the products, services, or results of the project or project phase

Initiating processes: Defining and authorizing a project or project phase

integrated change control  Identifying, evaluating, and managing changes throughout the project life cycle

interface management  Identifying and managing the points of interaction between various elements of a project

internal rate of return (IRR)  The discount rate that results in an NPV of zero for a project

Kick-off meeting: A meeting held at the beginning of a project so that stakeholders can meet each other, review the goals of the project, and discuss future plans

Methodology: A description of how things should be done

mind mapping  A technique that uses branches radiating from a core idea to structure thoughts and ideas

Monitoring and controlling processes: Regularly measuring and monitoring progress to ensure that the project team meets the project objectives

net present value (NPV) analysis  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

opportunities  Chances to improve an organisation

opportunity cost of capital  The rate used in discounting future cash flow; also called the capitalisation rate or discount rate

organisational process assets  Formal and informal plans, policies, procedures, guidelines, information systems, financial systems, management systems, lessons learned, and historical information that can influence a project’s success

payback period  The amount of time needed to recoup the total dollars invested in a project, in terms of net cash inflows

Problems:  Undesirable situations that prevent an organisation from achieving its goals

Process: A series of actions directed toward a particular result

Product backlog: A single list of features prioritized by business value

Product owner: The person responsible for the business value of the project and for deciding what work to do and in what order when using a Scrum method

project charter  A document that formally recognises the existence of a project and provides direction on the project’s objectives and management

project integration management  Processes that coordinate all project management knowledge areas throughout a project’s life, including developing the project charter, developing the preliminary project scope statement, developing the project management plan, directing and managing the project, monitoring and controlling the project, providing integrated change control, and closing the project

project management plan  A document used to coordinate all project planning documents and guide project execution and control

Project management process groups: The progression of project activities from initiation to planning, executing, monitoring and controlling, and closing

PRojects IN Controlled Environments (PRINCE2): A project management methodology developed in the United Kingdom that defines 45 separate sub-processes and organises these into eight process groups

required rate of return  The minimum acceptable rate of return on an investment

return on investment (ROI)  A method for determining the financial value of a project; the ROI is the result of subtracting the project costs from the benefits and then dividing by the costs

Stakeholder register: A document that includes details related to the identified project stakeholders

Standard: Best practices for what should be done

strategic planning  Determining long-term objectives by analysing the strengths and weaknesses of an organisation, studying opportunities and threats in the business environment, predicting future trends, and projecting the need for new products and services

SWOT analysis  Analysing Strengths, Weaknesses, Opportunities, and Threats; used to aid in strategic planning

User stories: Short descriptions written by customers of what they need a system to do for them

weighted scoring model  A technique that provides a systematic process for selecting projects based on numerous criteria