1. In Ch 1: The World of Project Management
The differences between project management and general management are overviewed.
The three interrelated project management objectives of budget, schedule, and specifications are introduced.
Two alternative project life cycles are presented and the importance of understanding this distinction is discussed.
Both qualitative (non-numeric) and quantitative (numeric) project selection methods are discussed.
Aggregate project plan is also discussed
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2. Why the emphasis on project management?
Projects are temporary endeavors undertaken to create a unique product or service.
Many tasks do not fit into business-as-usual.
temporary (specific start and stop)
unique (a one-of-a-kind output or deliverable
aimed at meeting a specific need of the client.
A non-project (a process) refers to the routine, repetitive work of the organization.
Need to assign responsibility and authority for achievement of organizational goals.
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3. Characteristics of Projects
Main Characteristics
Unique
Specific deliverable
Specific due date
Other Characteristics
Multidisciplinary
Complex
Conflict
Part of programs
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4. PMI Definition
Project: A project is a unique temporary endeavor, with a set beginning and end. Project Management: The application of knowledge, skills, tools and techniques to a broad range of activities in order to meet the requirements of a particular project.
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5. fig_01_01

6. Goals and Trade-offs The three goals of a project are:
On time
On budget
To specification (including “quality” and “client satisfaction”)
The project manager meets the goals by making trade-offs.  shorten the project duration by using more resources.
 An overdetermined project: has a fixed budget, fixed delivery time, and fixed specifications.
No place for trade-off. Is it Good?
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7. Abilities Needed For Effective Project Management
Conflict Resolution
Creativity and Flexibility
Ability to Adjust to Change
Good Planning
Negotiation
Win-lose negotiation is like a zero-sum game. Any time one side wins the other side loses. In a win-win negotiation, the outcome is such that both parties gain something from the interchange.
 Win-lose negotiating is dangerous for project managers who will have to deal with the same parties over and over again. The project manager who forces a functional manager to lose will have created a permanent enemy.
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8. Project Life Cycle: S-Shaped
fig_01_03
Project Life Cycle: S-Shaped

9. Level of Effort in a S-Shaped Life Cycle
fig_01_04
Level of Effort in a S-Shaped Life Cycle

10. fig_01_05 Life Cycle: J-Shaped
Resource allocation for S=shaped and J-shaped is quite different.

11. Project Selection: Qualitative Methodes
The Sacred Cow
A project proposed by the CEO, a big guy
The Operating/Competitive Necessity
It is required to continue our operations
We may lose our market share
Comparative Benefits
Q-sort
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12. The Q-Sort Method
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13. Project Selection: Quantitative Methods
Financial Assessment Methods
Payback period
Discounted cash flow
NPV
IRR
B/C
Scoring Methods
Unweighted 0-1 factor method
Weighted factor scoring method
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14. Payback Period
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15. Payback Period
Number of years needed for the project to repay its initial fixed investment.
A project costs $100,000 and is expected to save the company $20,000 per year.
PP = $100,000 / $20,000 = 5 years
Shortcoming
Ignores the time value of money, including interest rates and inflation.
Ignores money earned after the payback period.

16. Future Value (FV) Go to board Define r  MARR $100, 10%, one year
$100, 10% , two years
Compute F
P, i, 1  P,i, 2,  P, i, N
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17. Present Value (PV) Go to board Define r  MARR $100, 10%, one year
$100, 10% , two years
Compute F
P, i, 1  P,i, 2,  P, i, N
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18. Present Value of an Annuity (PVA)
Assume N= 10
Then change 10 to N
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19. Net Present Value (NPV)
I0 = the initial investment
Ft = the net cash flow in period t
r = the required rate of return or hurdle rate
Important note: NPV function in excel assumes that the first cash flow is at the end of year 1.
PV function computes the present value of an annuity
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20. Internal Rate of Return [IRR]
The discount rate (r) that causes the NPV to be equal to zero
The higher the IRR, the better
While it is technically possible for a series to have multiple IRRs, this is not a practical issue
Finding the IRR requires a financial calculator or computer
In Excel “=IRR(Series,Guess)”
Compare IRR with MARR

21. Internal Rate of Return (IRR)
Find a value of r such that NPV is equal to 0 (note: this value may not be unique)
Example (with T = 2):
Find r such that
Note that, in a typical project, early cash flows are negative.

22. Profitability Index or B/C Ratio
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23. Profitability Models Advantages Disadvantages
Easy to use and understand
Based on accounting data and forecasts
Familiar and well understood
Give a go/no-go indication
Can be modified to include risk
Disadvantages
Ignore non-monetary factors
Discounting models (NPV, IRR) are biased to the short-term

24. Expected Commercial Value (ECV)
Develop New Product
Technical Failure
Technical Success
Probability = pt
Probability = 1 - pt
Launch New Product
Commercial Failure (with net benefit = 0)
Commercial Success (with net benefit = NPV)
Probability = pc
Probability = 1 - pc
Risk class 1
Risk class 2
In fact, the previous example for DCF is also an ECV example.
ECV is the expected NPV of the project, calculated by using the probabilities of the various alternatives.

25. ECV Example
The design of a new product is expected to take 3 years, at a cost of $6m/year. The first payment is at the end of year 1.
There is a .8 probability that the product will be technically feasible
If feasible, the product can be launched in year 4 with an estimated cost of $5.5M
If launched, the product will be a commercial success with probability 0.6, earning gross revenues of $15M per year for 5 years
If it is a commercial failure, then the revenue is only $2M per year for 5 years
The discount rate is 10 percent

26. Research & Product Development
ECV Example
5 Years
Probability = 0.6
One-time cost of $5.5M
Commercial Success
Rev.= 15M/yr
3 Years
Probability = 0.8
Launch New Product
Development Succeeds
Research & Product Development
Commercial Failure
Rev.= 2M/yr
Probability = 0.2
Drop Product
Annual Cost: $6M
Development Fails
Probability = 0.4
No Cost
Discount rate r1=10%
Discount rate r2=10%

27. ECV Example $M
10%
Year
What’s Happening
Commercial Success
Commercial Failure
Expected Annual Cash Flow
Discounted Cash Flow 1
Technical development
(6.00)
(5.45) 2
Technical dev.
(4.96) 3
(4.51) 4
Product sales
$15 $2
3.44
2.35 5
7.84
4.87 6
4.43 7
4.02 8
3.66
Total = 4.40
Example calculation: .8[(.6)(15)+(.4)(2)-5.50]+.2(0)=3.44

28. A Discrete Probability Distribution
What is probability of demand to be equal to 130?
What is probability of demand to be less than or equal to 140?
What is probability of demand to be greater than 140?
What is probability of demand to be equal to 133?

29. Another Discrete Probability Distribution
What is probability of demand to be equal to 116?
What is probability of demand to be less than or equal to 116?
What is probability of demand to be greater than 116?
What is probability of demand to be equal to 13.3?

30. A Continuous Probability Distribution
What is probability of demand to be equal to 130?
What is probability of demand to be less than or equal to 140?
What is probability of demand to be greater than 140?
What is probability of demand to be equal to 133?

31. Continuous Probability Distributions
A continuous random variable can assume any value in an interval on the real line or in a collection of intervals.
We never compute the probability of a continuous random variable being equal to a specific value . This probability is always 0.
Instead, we talk about the probability of the random variable assuming a value within a given interval.

32. Continuous Probability Distributions
The probability of the random variable assuming a value within some given interval from x1 to x2 is defined to be the area under the graph of the probability density function between x1 and x2.

33. Average for Grouped Data: Discrete or Continuous
+100× × × × × ×0.16
+160× × × × ×0.01
Average = 151.6

34. Standard Deviation for Grouped Data: Discrete or Continuous
Variance =
+( )2 ×0.02
+( )2×0.05
+( )2 ×0.08
+…….
+……..
+( )2 ×0.05
+( )2 ×0.01
Variance = 503.4
Standard Deviation = 22.4

35. The Weighted Scoring Model
where
Si = the total score of the ith project
sij = the score of the ith project on the jth criterion
wj = the weight or importance of the jth criterion
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36. Uncertainties encountered in project management
Time required to complete a project
Availability of key resources
Cost of resources
Timing of solutions to technological problems
Actions taken by competitors
Uncertainty cannot be eliminated, but if managed properly, it can be minimized.
This is why we need trade-off.
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37. Risk Analysis
Estimate probabilities or distributions associated with key parameters
Develop analytic or simulation model
Analyze distribution of outcomes generated by model
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38. Project Portfolio Process (PPP)
PPP links projects to the goals and strategies of the organization. In the initiation and planning phases, and throughout the life cycle of the projects. The PPP is also a means for monitoring and controlling the organization's strategic projects. This may mean shutting down projects prior to their completion because of their risks or their costs, or because another project does a better job of supporting the goals.
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39. Steps In The Project Portfolio Process
Establish a Project Council
Identify Project Categories and Criteria
Collect Project Data
Assess Resource Availability
Reduce the Project and Criteria Set
Prioritize the Projects within Categories
Select the Projects to be Funded and Held in Reserve
Implement the Process
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40. Step 1: Establish a Project Council
Establishes strategic direction for projects. Allocates funds and control the allocation of human and capital resources to the projects.
Senior management
The project managers of major projects
The head of the Project Management Office
Relevant functional managers
Anyone who can identify key opportunities and risks facing the organization

41. Step2: Identify Project Categories and Criteria
Project categories are identified so the mix of projects will contribute to the organization's goals.
Within each category various criteria are established to rank the projects. The criteria are also weighted.
List the goals of each project and relate them to the organization's goals and strategies.
Identify the categories that are important to achieving the organization's goals.
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42. Wheelwright and Clark (1992) position - particularly product /service projects
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43. unfig_02_03
unfig_02_03

44. Wheelwright and Clark (1992) positioning
Derivative projects: Incrementally different in product or process from existing offerings. Often replace current offerings or add an extension to them (lower priced version, upscale version).
Platform projects : Major departures from existing offerings in terms of either the product or process. They become "platforms" for the next generation of organizational offerings, such as a new model of automobile or a new type of insurance plan.
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45. Wheelwright and Clark (1992) positioning
Breakthrough projects: Involve a newer technology. A technology that is known to the industry or something proprietary that the organization has been developing over time. Use of fiber optic cables for data transmission, and hybrid gasoline-electric automobiles.
R&D projects: Blue sky, visionary endeavors, oriented toward using newly developed technologies, or existing technologies in a new manner. They may also be for acquiring new knowledge, or developing new technologies themselves.
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46. fig_02_10 Size  size/resource needs.
Shape and shade  internal/ external, long/medium/short term.
Numbers  the order, or time frame, in which the projects are to be implemented, separated by category.

47. Benefits of the Aggregate Project Plan
View the mix of projects
Analyze and adjust the mix of projects
Assess the resource requirement indicated by the size, timing, and number of projects
Identify and adjust the gaps in the categories, sizes, and timing of the projects
Identify potential career paths for developing project managers, such as team members of a derivative project, then team members of a platform project, manager of a derivative project, members of a breakthrough project, and so on
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48. Analyzing Project Portfolios: Bubble Diagram
Expected NPV
Prob. of Commercial Success
High
Zero
Low
Shapes
Shading
Color
Size
Bubble diagrams are useful for representing a set of projects and visualizing a project portfolio.

49. Step 3: Collect Project Data
Collect data on timing, expected benefit and costs using existing/past projects and expert opinion.
Use the scoring models to screen out high cost or lower benefit projects ( because the organization's goals have changed).
Screen in any projects mandated by regulations or laws, competitive or operating necessities, projects required for environmental or personnel reasons.
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50. Step 4: Assess Resource Availability
Assess the availability of internal /external resources by type/department/ timing.
Balance aggregate project resource needs over future periods. Needing a normally plentiful resource at the same moment by several projects = catastrophe.
Scheduling resource usage as closely as possible to system capacity = catastrophe.
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51. Step 5: Reduce the Project and Criteria Set
Organization’s goals
Have competence
Market for offering
How risky
Potential partner
Right resources
Good fit
Use strengths
Synergistic
Dominated by another
Has slipped in desirability

52. Step 6: Prioritize the Projects within Categories
Apply the scores and criterion weights to rank the projects within each category.
Hold some hard-to-measure criteria out for subjective evaluation, such as riskiness, or development of new knowledge.
Subjective evaluations can be translated from verbal to numeric terms easily by the Delphi, Pair-wise Comparisons, or other methods.
Different projects are offering different packages of benefits that are not comparable. For example, R&D projects will not have the expected monetary return of derivative projects
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53. Step 7: Select the Projects to be Funded and Held in Reserve
Determine the mix of projects across the various categories and time periods.
Leave percent of the organization's resource capacity free for variability and new opportunities.
Include some speculative projects in each category to allow future options, knowledge improvement, additional experience in new areas.
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54. Step 8: Implement the Process
Communicate results
Repeat regularly
Improve process
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55. Assignments Review Questions: 2,3,4,5,6,8
Discussion Questions: 10,11,13,16
Incidents for Discussion: None
Problems: 19(with and without CB),23,25
Cases: 1,2
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