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Ch. 2 Strategic Management and Project Selection

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 .

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Ch. 2 Strategic Management and Project Selection

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  1. Ch. 2 Strategic Managementand 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

  2. 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

  3. Ch. 2.1: Project Management Maturity Levels • Ad-hoc (essentially disorganized) • Abbreviated (some processes exist) • Organized (standardized processes) • Managed (measured processes) • Adaptive (continuous improvement)

  4. Ch 2.2: PS Models • Idealized view of reality • Representing the STRUCTURE of the problem, not the detail • Deterministic or stochastic

  5. 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)

  6. 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!

  7. Ch. 2.3: Nature of PS Models:Methodology • Start with detailed list of firm’s goals • Create list of project evaluation factors (PEF’s) • Weigh every element in PEF list • Compute an overall score for project based on weighted PEF’s • Select project that has the closest alignment with firm’s goals

  8. Ch 2.3: Project Evaluation Factors (PEFs) • Production Factors • Marketing Factors • Financial Factors • Personnel Factors • Administrative and Misc. Factors

  9. Ch 2.4: Types of PS Models:Nonnumeric • Sacred Cow • Operating Necessity • Competitive Necessity • Product Line Extension • Comparative Benefit Model

  10. 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

  11. Unweighted 0-1 Factor Model Unweighted Factor Scoring Model Weighted Factor Scoring Model Constrained Weighted Factor Scoring Model S = ∑(x) S = ∑(s) S = ∑(s·w) S = ∑(s·w) ∏(c) Ch 2.4: Numeric PS Models:Scoring

  12. 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

  13. Ch 2.5: Management of Risk:Terminology • Risk: Decision based on complete information about the probability of each possible outcome. • Uncertainty: Decision based on incomplete or insufficient data. • Game: Decision based under conditions of conflict.

  14. 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

  15. Ch 2.6: Risk AnalysisCrystal Ball®2000 Software • 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

  16. Ch 2.6: Risk Analysis:Crystal Ball®2000 Software • Input of Cash Flow parameter from Psycho Ceramic example

  17. Ch 2.6: Risk Analysis:Crystal Ball®2000 Software • Select distribution parameter(Triangular for this example)

  18. Ch 2.6: Risk Analysis:Crystal Ball®2000 Software • Output, 1000 Monte Carlo Runs(example:Average Project NPV $10,821)

  19. Ch. 2.6: Window-of-Opportunity 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

  20. Ch. 2.6: Problems Affecting Data Used in PS Models • Accounting: arbitrary assignment of overhead costs, linear cost and revenue forecasts • Measurements: (subjective vs. objective), (quantitative vs. qualitative), (reliable vs. unreliable), (valid vs. invalid) • Technology shock: New technology has to overcome initial resistance threshold.

  21. Ch 2.7: Project Portfolio Process (PPP) • Step 1: Establish a Project Council • Step 2: Identify Project Categories & Criteria • Step 3: Collect Project Data • Step 4: Assess Resource Availability • Step 5: Reduce Project and Criteria Set • Step 6: Prioritize Projects within Categories • Step 7: Prioritize the projects within categories • Step 8: Implement the Process

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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)

  27. 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 (artist’s renderings, meeting facilities, video conferencing, computer graphics)

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