1. 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

2. Ch. 2.0: Overview of PS Process
Project Management Office (PMO): Aligning corporate needs and project goals
Project selection: Choose candidate projects 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. Ch 2.4: Numeric PS Models: Scoring
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)

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 choose scoring PS models
Firms without outside funding often choose 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 Analysis Crystal 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 subprocesses
Compute cost/performance of new innovation as a multiple of each subprocess 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. Step 1: Establish a Project Council
Includes:
Senior Management
Project Managers of major projects
Relevant general managers
Those who identify key risks
Those who could derail PPP later

23. Step 2: Identify Project Categories and Criteria
Derivative Projects
Platform Projects
Breakthrough Projects
R & D Projects

24. Step 3: Collect Project Data
Use “activity based costs”
Verify all data
Include timing for benefits and resource needs
Document assumptions for future checking

25. Step 4: Access Resource Availability
Access availability of Internal and External Resources by:
Type
Department
Timing: can vary 100% over project life cycle

26. Step 5: Reduce the Project and Criteria Set
Narrow down existing projects
required competence exists in organization
Market for offering
Profitability
Risk
Potential partner to assist with project
Right resources available at the right times
Good technological fit with organization
Uses organization’s strengths
Synergetic with other important projects
Slipped in desirability

27. Step 6: Prioritize Projects within Categories
Rank projects within each category
Measure by
Risk
Development of new knowledge
Consider benefits first
Consider cost second

28. Step 7: Select the projects to be Funded and Held in Reserve
Determine the mix of projects across various categories and time periods
Leave % of organization’s resources free
Focus on committing to FEWER projects

29. Step 8: Implement the Process
Make results of the PPP widely known
Senior management must fully fund
Process will be repeated on a regular basis

30. 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

31. 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

32. 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

33. 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

34. 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 (including slack time)

35. 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)