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Importance of Project Management

Importance of Project Management. • Projects represent change and allow organizations to effectively introduce new products, new process, new programs • Project management offers a means for dealing with dramatically reduced product cycle times

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Importance of Project Management

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  1. Importance of Project Management • Projects represent change and allow organizations to effectively introduce new products, new process, new programs • Project management offers a means for dealing with dramatically reduced product cycle times • Projects are becoming globalized making them more difficult to manage without a formal methodology • Project management helps cross-functional teams to be more effective

  2. Management of IT Projects • More than $250 billion is spent in the US each year on approximately 175,000 information technology projects.• Only 26 percent of these projects are completed on time and within budget.• The average cost for a development project for a large company is more than $2 million.• Project management is an $850 million industry and is expected to grow by as much as 20 percent per year. Bounds, Gene. “The Last Word on Project Management” IIE Solutions, November, 1998.

  3. • • • • • • • How does a project differ from a program? What Defines a Project?

  4. “Ultimately, the parallels between process and project management give way to a fundamental difference: process management seeks to eliminate variability whereas project management must accept variability because each project is unique.” Elton, J. & J. Roe. “Bringing Discipline to Project Management” Harvard Business Review, March-April, 1998. Project Management versus Process Management

  5. • • • • • • • Was the movie “Titanic” a success? Measures of Project Success

  6. Delayed Openings are a Fact of Life in the Foodservice, Hospitality Industry Disney's shipbuilder was six months late in delivering its new cruise ships, and thousands of customers who had purchased tickets were stranded. Even with that experience, their second ship was also delivered well after the published schedules. Universal Studios in Orlando, Fla. had been building a new restaurant and entertainment complex for more than two years. They advertised a December opening, only to announce in late November that it would be two or three months late. Even when facilities do open close to schedule, they are rarely finished completely and are often missing key components. Why do those things happen? With all of the sophisticated computers and project management software, why aren't projects completed on schedule? Frable, F. Nation's Restaurant News (April 12, 1999)

  7. 6% 16% 9% 29% 8% 6% 26% IT Project Outcomes Source: Standish Group Survey, 1999 (from a survey of 800 business systems projects)

  8. Why do Projects Fail? Studies have shown that the following factors contribute significantly to project failure: • Improper focus of the project management system • Fixation on first estimates • Wrong level of detail • Lack of understanding about project management tools; too much reliance on project management software • Too many people • Poor communication • Rewarding the wrong actions

  9. Why do IT Projects Fail? • Ill-defined or changing requirements • Poor project planning/management • Uncontrolled quality problems • Unrealistic expectations/inaccurate estimates • Naive adoption of new technology Source: S. McConnell, Construx Software Builders, Inc.

  10. Have You Ever Lost Sight of the Project Goals?

  11. Not all Projects Are Alike… “[in IT projects], if you ask people what’s done and what remains to be done there is nothing to see. In an IT project, you go from zero to 100 percent in the last second--unlike building a brick wall where you can see when you’re halfway done. We’ve moved from physical to non-physical deliverables….” J. Vowler (March, 2001) Engineering projects = task-centric IT projects = resource-centric

  12. Shenhar’s Taxonomy of Project Types De g ree o f U n cert ain t y/ R isk S u p e r Hi gh - ER P T e c h im p l e me n t a ti on i n m u lti- na ti ona l fi r m H ig h- N e w s h r i n k - A d van c e d T e c h w r ap p e d r ada r so ftw ar e sy st e m M e d i um- N e w T e c h c e ll pho n e Low - A ut o r e pa ir Co n s tr u ct io n T e c h H ig h A s s em b l y Sy st e m A rr ay P ro ject s P ro ject s P ro ject s Sys tem C o m pl e xi t y/S c op e

  13. Project Life Cycle Required Resources Time Phase 1 Phase 2 Phase 3 Phase 4 Formation & Planning Scheduling & Evaluation & Selection Control Termination

  14. Concept Design Requirements Analysis Architecture Design Detailed Design Coding & Debugging System Testing Life Cycle Models: Pure Waterfall Source: S. McConnell Rapid Development (Microsoft Press, 1996)

  15. Life Cycle Models: Code & Fix

  16. DESIGN Required Performance QUALITY Target COST Budget Constraint TIME (SCHEDULE) Due Date Optimal Time-Cost Trade-off Design, Cost, Time Trade-offs

  17. Optional Scope Contracts Since it is widely accepted that you can select three of the four dimensions (or perhaps only two), what to do? Fixed Scope Contractspecifies SCHEDULE, COST, SCOPE Optional Scope Contractspecifies SCHEDULE, COST, QUALITY (general design guidelines may be indicated)

  18. Importance of Project Selection “There are two ways for a business to succeed at new products: doing projects right, and doing the right projects.” Cooper, R.G., S. Edgett, & E. Kleinschmidt. Research • Technology Management, March-April, 2000.

  19. Project Initiation & Selection • Critical factors 1) Competitive necessity 2) Market expansion 3) Operating requirement • Numerical Methods 1) Payback period 2) Net present value (NPV) or Discounted Cash Flow (DCF) 3) Internal rate of return (IRR) 4) Expected commercial value (ECV) • Project Portfolio 1) Diversify portfolio to minimize risk 2) Cash flow considerations 3) Resource constraints

  20. Payback Period Number of years needed for project to repay its initial fixed investment Example: Project costs $100,000 and is expected to save company $20,000 per year Payback Period = $100,000 / $20,000 = 5 years

  21. Net Present Value (NPV) Discounted Cash Flow (DCF) Let Ft = net cash flow in period t (t = 0, 1,..., T) F0 = initial cash investment in time t = 0 r = discount rate of return (hurdle rate)

  22. Example (with T = 2): Find r such that Internal Rate of Return (IRR) Find value of r such that NPV is equal to 0

  23. DCF Project Example* *Hodder, J. and H.E. Riggs. “Pitfalls in Evaluating Risky Projects”, Harvard Business Review, Jan-Feb, 1985, pp. 128-136.

  24. What is the internal rate of return for this project? DCF Project Example (cont’d)

  25. DCF Example Continued What if you can sell the product (assuming that both Research and Product Development AND Market Development are successful) to a third party? What are the risks AT THAT POINT IN TIME? Assume that discount rate r2 is 5%

  26. What is the internal rate of return for this project? DCF Example Continued Expected cash flows (with sale of product at end of year 4) are now:

  27. Criticisms of NPV/DCF 1) Assumes that cash flow forecasts are accurate; ignores the “human bias” effect 2) Fails to include effects of inflation in long term projects 3) Ignores interaction with other proposed and ongoing projects (minimize risk through diversification) 4) Use of a single discount rate for the entire project (risk is typically reduced as the project evolves)

  28. Probability = pc Commercial Success (with net benefit = NPV) Develop New Product Launch New Product Probability = pt Technical Success Probability = 1 - pc Commercial Failure (with net benefit = 0) Probability = 1 - pt Technical Failure Risk class 1 Risk class 2 Expected Commercial Value (ECV)

  29. Probability = pt Market Development Development Succeeds Research & Product Development Probability = 1 - pt Development Fails Discount rate r1 Discount rate r2 DCF Example Revisited Product Demand High 0.3 0.5 Product Demand Medium 0.2 Product Demand Low Drop project

  30. Ranking/Scoring Models

  31. Scoring Attributes To convert various measurement scales to a (0, 1) range…. LINEAR SCALE: value of attribute i is EXPONENTIAL SCALE: value of attribute i is

  32. Ranking/Scoring Example

  33. Ranking/Scoring Example (cont’d)

  34. Analyzing Project Portfolios: Bubble Diagram Prob of Commercial Success High Zero High Expected NPV Low

  35. Analyzing Project Portfolios: Product vs Process Extent of Product Change Extentof Process Change Source: Clark and Wheelwright, 1992

  36. Key Elements of Project Portfolio Selection Problem 1. Multi-period investment problem Top management typically allocates funds to different product lines (e.g., compact cars, high-end sedans) Product lines sell in separate (but not necessarily independent) market segments Product line allocations are changed frequently Conditions in each market segment are uncertain from period to period due to competition and changing customer preferences

  37. Initiation Define Design Improve Control Installation Plan Facility Prep Training Plan Implementation Detail Design Schedule & Budget Contingency Plan Product & Performance Reviews Work Statement Risk Assessment Purchasing Plan Change Mgt Initiation Project Review Charter Source: PACCAR Information Technology Division Renton, WA “Stage-Gate” Approach Production close-out Lessons learned Post-project audit

  38. Project Selection Example

  39. Project formulation and selection Project planning Summary statement Work breakdown structure Organization plan risk management Subcontracting and bidding process Project scheduling Time and schedule Project budget Resource allocation Equipment and material purchases Monitoring and control Cost control metrics Change orders Milestone reports Phases of Project Management

  40. Summary Statement Executive summary: mission and goals, constraints Description and specifications of deliverables Quality standards used (e.g., ISO) Role of main contractor and subcontractors Composition and responsibilities of project team Organization Plan Managerial responsibilities assigned; signature authority Cross impact matrix (who works on what) Relationship with functional departments Project administration Role of consultants Communication procedures with organization, client, etc. Project Planning

  41. Importance of Project Planning The 6P Rule of Project Management: Prior Planning Prevents Poor Project Performance “If you fail to plan, you will plan to fail” Anonymous

  42. Work Breakdown Structure (WBS) 1) Specify the end-item “deliverables” 2) Subdivide the work, reducing the dollars and complexity with each additional subdivision 3) Stop dividing when the tasks are manageable “work packages” based on the following: • Skill group(s) involved • Managerial responsibility • Length of time • Value of task

  43. Work Packages/Task Definition The work packages (tasks or activities) that are defined by the WBS must be: • Manageable • Independent • Integratable • Measurable

  44. Design of a WBS “The usual mistake PMs make is to lay out too many tasks; subdividing the major achievements into smaller and smaller subtasks until the work breakdown structure (WBS) is a ‘to do’ list of one-hour chores. It’s easy to get caught up in the idea that a project plan should detail everything everybody is going to do on the project. This springs from the screwy logic that a project manager’s job is to walk around with a checklist of 17,432 items and tick each item off as people complete them….” The Hampton Group (1996)

  45. 1.Charity Auction WBS level 1 1.1 Event Planning 1.2 Item Procurement 1.3 Marketing 1.4. Corporate Sponsorships WBS level 2 Two-Level WBS

  46. 1. Charity Auction 1.1 Event Planning 1.2 Item Procurement 1.3 Marketing 1.4 Corporate Sponsorships 1.1.1Hire Auctioneer 1.2.1 Silent auction items 1.3.1 Individual ticket sales 1.1.2. Rent space 1.2.2 Live auction items 1.3.2 Advertising 1.1.3 Arrange for decorations 1.2.3 Raffle items 1.1.4 Print catalog Three-Level WBS WBS level 1 WBS level 2 WBS level 3

  47. • Benchmarking • Modular approach • Parametric techniques • Learning effects Estimating Task Durations (cont’d)

  48. Probability density function Completion time of task j Time Beta Distribution

  49. Beta Distribution For each task j, we must make three estimates: most optimistic time most pessimistic time most likely time

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