02 Intro Aligning Projects with Business Strategy_VE_V1.0 - VCV.pdf

CT050-3-3 Project Management Topic 02: Introduction – Aligning Projects with Business Strategy Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 1  TOPIC LEARNING OUTCOMES At the end of this topic, you should be able to: 1...

CT050-3-3 Project Management Topic 02: Introduction – Aligning Projects with Business Strategy Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 1  TOPIC LEARNING OUTCOMES At the end of this topic, you should be able to: 1. Describe the importance of aligning projects with business strategy, the strategic planning process, and using a SWOT analysis 2. Explain two different approaches to the project planning process—a four-stage traditional approach and an agile approach 3. Summarize the various methods for selecting projects and demonstrate how to calculate net present value, return on investment, payback, and the weighted score for a project 4. Discuss the program selection process and distinguish the differences between programs and projects 5. Describe the project portfolio selection process and the five levels of project portfolio management Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 2 SLIDE 2  Contents & Structure Different Methods of Selection and aligning projects to Business Strategy Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 3  Recap From Last Lesson What are projects, programs, and portfolios? What are the various attributes of a project? What are the project constraints? What is Project Management? Describe the PMBOK Framework. Who are the Project Stakeholders? What are the suggested skills for Project Managers, Program Managers and Portfolio Managers? Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 4  Key Terms You Must Be Able To Use If you have mastered this topic, you should be able to use the following terms correctly in your assignments and exams: –Business strategy –Project selection Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 5  Aligning Projects with Business Strategy Most organizations cannot undertake most of the potential projects identified because of resource limitations and other constraints An organization’s overall business strategy should guide the project selection process and management of those projects Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 6 SLIDE 6  SWOT Analysis SWOT analysis involves analyzing Strengths, Weaknesses, Opportunities, and Threats It can help you identify potential projects, as is shown in the example about four people trying to start a new business Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 7 SLIDE 7  Figure 2-2. Mind Map of a SWOT Analysis to Help Identify Potential Projects (Created with MatchWare’s MindView Business Edition) Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 8 SLIDE 8  Figure 2-1. Sample SWOT Analysis (Nemours) Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 9 SLIDE 9  Traditional And Agile Approaches To Project Planning Many organizations follow a traditional approach, often completed in four stages To make more timely decisions, they may also use an agile approach Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 1 SLIDE 10  Traditional Project Planning Process Organizations often follow a detailed planning process for project selection, often done on an annual basis Figure 2-3 shows a four-stage planning process for selecting projects It is very important to start at the top of the pyramid to select projects that support the organization’s business strategy Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 11 SLIDE 11  Figure 2-3. Pyramid for a Traditional Project Planning Process Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 12  An Agile Mindset for Project Planning In contrast to the traditional, top-down planning approach, an agile planning approach is much more flexible and allows teams to provide feedback on strategy which can influence a change in direction Instead of selecting and funding a specific project, the corporation defines the strategic direction, funds teams, and entrusts them to figure out the best approach to define and deliver the greatest business value Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 13  Methods for Selecting Projects Focus on competitive strategy and broad organizational needs Perform net present value analysis or other financial projections Use a weighted scoring model Implement a balanced scorecard Address problems, opportunities, and directives Consider project time frame Consider project priority Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 14  Performing Financial Projections Financial considerations are often an important aspect of the project selection process Three important methods include: – Net present value analysis – Return on investment – Payback analysis Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 15  Net Present Value Analysis Net present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time NPV means the return from a project exceeds the opportunity cost of capital—the return available by investing the capital elsewhere Projects with higher NPVs are preferred to projects with lower NPVs if all other factors are equal Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 16  Figure 2-5. Net Present Value Example Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 17  Figure 2-6. Detailed NPV Calculations Discount rate 10% Year PROJECT 1 1 2 3 4 5 Total Benefits $ - $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 8,000,000 Discount factor 0.91 0.83 0.75 0.68 0.62 Discounted benefits $ - $ 1,652,893 $ 1,502,630 $ 1,366,027 $ 1,241,843 $ 5,763,392 Costs $ 4,000,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 6,000,000 Discount factor 0.91 0.83 0.75 0.68 0.62 Discounted costs $ 3,636,364 $ 413,223 $ 375,657 $ 341,507 $ 310,461 $ 5,077,212 Total discounted benefits - costs, or NPV $ 686,180 Note: The discount factors are not rounded to two decimal places. They are calculated using the formula discount factor =1/(1+discount rate)^year. Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy 18 SLIDE 18  NPV Considerations Some organizations refer to the investment year(s) for project costs as Year 0 instead of Year 1 and do not discount costs in Year 0 The discount rate can vary, based on the prime rate and other economic considerations. You can enter costs as negative numbers instead of positive numbers, and you can list costs before benefits Project managers should check to see which approaches their organizations prefer when calculating NPV Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 19 Figure 2-7. Intranet Project NPV Example Schwalbe, Information Technology Project Management, Sixth Edition, 2010 Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 20  Steps for Calculating NPV 1. Determine the estimated costs and benefits for the life of the project and the products it produces. 2. Determine the discount rate. A discount rate is the rate used in discounting future cash flows. The annual discount factor is a multiplier for each year based on the discount rate and year (calculated as 1/(1+r)t, where r is the discount rate, and t is the year). 3. Calculate the net present value by subtracting the total discounted costs from the total discounted benefits. Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 21  Return on Investment Return on investment (ROI) is the result of subtracting the project costs from the benefits and then dividing by the costs. For example, if you invest $100 today and next year your investment is worth $110, your ROI is ($110 – 100)/100, or 0.10 (10 percent) Note that the ROI is always a percentage, and the higher the ROI, the better Many organizations have a required rate of return for projects— the minimum acceptable rate of return on an investment You can find the internal rate of return (IRR) by finding what discount rate results in an NPV of zero for the project Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 22  Payback Analysis Payback period is the amount of time it will take to recoup—in the form of net cash inflows—the total dollars invested in a project Payback analysis determines how much time will lapse before accrued benefits overtake accrued and continuing costs Payback occurs in the year when the cumulative benefits minus costs reach zero The shorter the payback period, the better Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 23  Figure 2-8. Charting the Payback Period Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 24  Weighted Scoring Models A weighted scoring model is a tool that provides a systematic process for selecting projects based on many criteria To create a weighted scoring model: –Identify criteria important to the project selection process –Assign a weight to each criterion (so they add up to 100 percent) –Assign numerical scores to each criterion for each project –Calculate the weighted scores by multiplying the weight for each criterion by its score and adding the resulting values Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 25  Figure 2-9. Sample Weighted Scoring Model for Project Selection Criteria Weight Trip 1 Trip 2 Trip 3 Trip 4 Total cost of the trip 25% 60 80 90 20 Probability of good weather 30% 80 60 90 70 Fun activities nearby 15% 70 30 50 90 Recommendations 30% 50 50 60 90 Weighted Project Scores 100% 64.5 57.5 75 66.5 Weighted Score by Project Trip 4 Trip 3 Trip 2 Trip 1 0 20 40 60 80 Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 26  Implementing a Balanced Scorecard Dr. Robert Kaplan and Dr. David Norton developed another approach to help select and manage projects that align with business strategy A balanced scorecard is a methodology that converts an organization’s value drivers—such as customer service, innovation, operational efficiency, and financial performance—to a series of defined metrics Visit www.balancedscorecard.org for more information on using this approach to select projects Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 27 Figure 2-10. Sample Balanced Scorecard Strategy Map (Nemours) Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 28  Project Time Frame Another approach to project selection is based on the time it will take to complete a project or the date by which it must be done For example, some potential projects must be finished within a specific time period. If they cannot be finished by this set date, they are no longer valid projects Some projects can be completed very quickly—within a few weeks, days, or even minutes. However, even though many projects can be completed quickly, it is still important to prioritize them Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 29  Project Priority Many organizations prioritize projects as being high, medium, or low priority based on the current business environment Organizations should always focus on high-priority projects Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 30  Program Selection Recall that a program is a group of related projects, subsidiary programs, and program activities managed in a coordinated manner to obtain benefits not available from managing them individually After deciding which projects to pursue, organizations need to decide if it is advantageous to manage several projects together as part of a program There might already be a program that a new project would logically fall under, or the organization might initiate a program and then approve projects for it Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 31  Project Portfolio Selection It’s crucial to focus on enterprise success when creating project portfolios There may be a need to cancel or put several projects on hold, reassign resources from one project to another, suggest changes in project leadership, or take other actions that might negatively affect individual projects or programs to help the organization as a whole For example, a university might have to close a campus in order to provide quality services at other campuses Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 32  Sample Approaches for Creating a Project Portfolio Figure 2-11 illustrates one approach for project portfolio management in which there is one large portfolio for the entire organization. Sections of the portfolio are broken down to improve the management of projects in each sector The IT projects are broken down into three categories: –Venture: Projects that help transform the business –Growth: Projects that help increase revenues –Core: Projects that help run the business Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 33  Figure 2-11. Sample Project Portfolio Approach Schwalbe, Information Technology Project Management, Sixth Edition, 2010 Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 34  Five Levels of Project Portfolio Management 1. Put all of your projects in one list 2. Prioritize the projects in your list 3. Divide your projects into several categories based on types of investment 4. Automate the list 5. Apply modern portfolio theory, including risk-return tools that map project risks Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 35  Figure 2-13. Deciding What Fruit to Eat (www.xkcd.com) Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 36  Quick Review Questions 1. Describe the importance of aligning projects with business strategy, the strategic planning process, and using a SWOT analysis 2. Explain two different approaches to the project planning process—a four-stage traditional approach and an agile approach 3. Summarize the various methods for selecting projects 4. Discuss the program selection process and distinguish the differences between programs and projects 5. Describe the project portfolio selection process and the five levels of project portfolio management Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 37  Summary of Main Teaching Points An organization’s overall business strategy should guide the project selection process and management of those projects Many organizations follow a traditional approach, often completed in four stages. To make more timely decisions, they can also use an agile approach. Several methods are available for selecting projects, including financial methods (net present value, return on investment, and payback); weighted scoring models; balanced scorecards; addressing problems, opportunities, and directives; project time frame; and project priority The main criteria for program selection are the coordination and benefits available by grouping projects The goal of project portfolio management is to help maximize business value to ensure enterprise success Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 38  Summary / Recap of Main Points 1. Importance of aligning projects with business strategy 2. Project planning process—a four-stage traditional approach and an agile approach 3. Various methods for selecting projects and demonstrate how to calculate net present value, return on investment, payback, and the weighted score for a project 4. Program selection process and distinguish the differences between programs and projects 5. Project portfolio selection process and the five levels of project portfolio management Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 39  What To Expect Next Week In Class Preparation for Class Description of Project Management Think about how you would start a Process Groups and Knowledge Areas. project. Understand the different Project Management Methodologies. Discuss the Project Initiating process. Understand the importance of Business Case. Identify & Analyse Project Stakeholders. Create a Project Charter & Assumption Log. Describe the importance of having a Project Kick-off meeting. Project Management & CT050-3-3-PRMGT Intro Aligning Projects with Business Strategy SLIDE 40