1. No category

Ch. 2 Strategic Management
and Project Selection
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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
Ch. 2.0: Overview of PS
Process
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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
Ch. 2.1: Project Management
Maturity Levels
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Ad-hoc (essentially disorganized)
Abbreviated (some processes exist)
Organized (standardized processes)
Managed (measured processes)
Adaptive (continuous improvement)
Ch 2.2: PS Models
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Idealized view of reality
Representing the STRUCTURE of the
problem, not the detail
Deterministic or stochastic
Ch. 2.2: Criteria for Project
Selection models
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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)
Ch. 2.3: Nature of PS models:
Caveats
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Project decisions are made by PM --NOT by PS model!
A PS model APPROXIMATES, but does
NOT DUPLICATE reality!
Ch. 2.3: Nature of PS Models:
Methodology
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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
Ch 2.3: Project Evaluation
Factors (PEFs)
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Production Factors
Marketing Factors
Financial Factors
Personnel Factors
Administrative and Misc. Factors
Ch 2.4: Types of PS Models:
Nonnumeric
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Sacred Cow
Operating Necessity
Competitive Necessity
Product Line Extension
Comparative Benefit
Model
Ch 2.4: Numeric PS Models:
Profit / Profitability
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Payback Period (PB)
Average Rate of Return
Discounted Cash Flow (NPV)
Internal Rate of Return
Profitability Index
Other Profitability Models
Ch 2.4: Numeric PS Models:
Scoring
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Unweighted 0-1
Factor Model
Unweighted Factor
Scoring Model
Weighted Factor
Scoring Model
Constrained
Weighted Factor
Scoring Model
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S = ∑(x)
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S = ∑(s)
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S = ∑(s·w)
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S = ∑(s·w) ∏(c)
Ch 2.4: Choosing the PS
Model
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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
Ch 2.5: Management of Risk:
Terminology
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Risk: Decision based on complete
information about the probability of
each possible outcome.
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Uncertainty: Decision based on
incomplete or insufficient data.
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Game: Decision based under
conditions of conflict.
Ch 2.5: Areas of Uncertainty
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Project timing & expected cash flow.
Direct outcome of project, i.e. what
exactly will the project accomplish
Side effects and unforeseen
consequences of project
Ch 2.6: Risk Analysis
Crystal Ball®2000 Software
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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
Ch 2.6: Risk Analysis:
Crystal Ball®2000 Software
1)
Input of Cash Flow parameter from
Psycho Ceramic example
Ch 2.6: Risk Analysis:
Crystal Ball®2000 Software
2)
Select distribution parameter
(Triangular for this example)
Ch 2.6: Risk Analysis:
Crystal Ball®2000 Software
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Output, 1000 Monte Carlo Runs
(example:Average Project NPV $10,821)
Ch. 2.6: Window-ofOpportunity Analysis
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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
Ch. 2.6: Problems Affecting
Data Used in PS Models
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Accounting: arbitrary assignment of
overhead costs, linear cost and revenue
forecasts
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Measurements: (subjective vs.
objective), (quantitative vs. qualitative),
(reliable vs. unreliable), (valid vs. invalid)
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Technology shock: New technology has
to overcome initial resistance threshold.
Ch 2.7: Project Portfolio
Process (PPP)
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Step
Step
Step
Step
Step
Step
Step
Step
1:
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8:
Establish a Project Council
Identify Project Categories & Criteria
Collect Project Data
Assess Resource Availability
Reduce Project and Criteria Set
Prioritize Projects within Categories
Prioritize the projects within categories
Implement the Process
Ch 2.8: Project Proposal:
Content
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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
Ch 2.8: Project Proposal:
Cover letter & Executive summary
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Compose a cover letter as key
marketing instrument
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Explain fundamental nature and
general benefits of project
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Minimally technical language
Ch 2.8: Project Proposal:
Past Experience of Project Team
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List all key project personnel with
titles and qualifications
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Include full resume of each principal
Provide all pertinent references
Ch 2.8: Project Proposal:
Technical Approach
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General description of problem to be
addressed or project to be undertaken
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Major subsystems of problem or
project
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Methodology of solving the problem
Special client requirements
Test and inspection procedures
Ch 2.8: Project Proposal:
Implementation Plan
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Estimates of time, cost and materials for
each subsystem and the whole project
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Establish major milestones to break
project into phases
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List equipment, overhead and
administrative cost
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Develop contingency plans (incl. slack
time)
Ch 2.8: Project Proposal:
Plan for Administration and Logistic
Support
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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)