Implementing Strategy
through Projects
Chapter 2
Project Management Maturity
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To measure in different ways the organization's project managers
mastery of the skills required to mange projects completely is
called Project Management Maturity.
Capability Maturity model for software development and 4 other
industries by Carnegie Mellon university: it consists of a
questionnaire of 148 questions divided into
6 processes/ life-cycle phases( initiating, planning, executing,
controlling, closing and project-driven organization environment.
PMBOK knowledge areas. ( scope, time, cost, quality, human
resource, communication, risk and procurement)
The model assessing an organization’s project management
maturity in terms of essentially the same 5 stages as just
described but called : ad-hoc, planned, managed, integrated, and
sustained.
Project Management Maturity
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PM3 registered by R.Remy: in this system of
management maturity an organization is assessed as
being at one of these levels.
Ad-hoc: disorganized, accidental success and failures
Abbreviated: some processes exist, inconsistent
management, unpredictable results
Organized : standardized results, more predictable
results.
Managed : controlled and measured processes, results
more in line with plans
Adaptative: continuous improvement in processes,
success is normal, performance keep improving
Project selection and Criteria
Choice
Project selection is the process of evaluating individuals projects or
group of projects, and then choosing to implement some of them so
that the objectives of the parents organization will be achieved.
Project selection is only one of the decisions associated with project
management
To deal with all of these problems, we use decision aiding models.
Such models abstract the relevant issues about a problem from the
plethora of details in which the problem is embedded.
Reality is far to complex to deal with in its entity.
The process of carving away the unwanted reality from the bones of
a problem is called modeling the problem.
The idealized version of the problem that results is called the model.
The model represents the problem structure and its forms.
Every problem has a form, though often we may not understand a
problem well enough to describe its structures.
Categories for Project Selection
model
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When a firm chooses a project selection model, the following
criteria, based on Souder(1973) are most important:
Realism: the model should reflect the reality of manager's
decision including the multiple objectives of both the firm and its
managers.
Capability: the model should be capable enough to deal with
multiple time periods, simulate various situations both internal and
external to the project( e.g. strikes, simulate various interest rate
changes)
Flexibility: the model should valid results within the range of
conditions that the firm might experience. It should have the ability
to be easily modified, or to be self-adjusting in response to
changes in the firm’s environment.
Cont…
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Ease of use: the model should be convenient, not take
a long time to execute, and be easy to use and
understand.
Cost : data gathering and modeling cost should be
relatively low to the cost pf the project and must surely
be less than the potential benefits of the project.
Easy computation: it should be east and convenient to
gather and store the information in the computer
database and to manipulate data in the model through
use of widely available standard computer package
such as Excel, lotus 1-2-3. quarto Pro etc.
Types of Project selection Models
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2.
Nonnumeric Models
The sacred cow : the project is sacred in the sense
that it will be maintained until successfully concluded,
or until the boss personally, recognizes the idea as a
failure and terminates it.
The Operating Necessity : if a project is required in
order to keep the system operating, the primary
question becomes: is the system worth saving at the
estimated cost of the project ? If the answer is yes,
project cost will be examined to make sure they are
kept as low as is consistent with project success, but
the project will be funded.
Types of Project selection Models
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4.
The Competitive Necessity : although the planning project are
quite sophisticated, the decision to undertake the project was
based on a desire to maintained the company’s competitive
position in that market.
Investment in an operating necessity projects takes precedence
over the competitive necessity project, both types of projects may
bypass the more careful numeric analysis used for projects
deemed to be less urgently or less important to the survival of the
firm.
The product Line Extension : a project to develop and distribute
new products would be judged on the degree to which it fits the
firm’s existing product line, fills a gap, strengthens a weak link, or
extends the line in a new, desirable direction. Decisions makers
can act on their beliefs about what will be the likely impact on the
total system performance if the new product is added to the line.
Types of Project selection Models
5.
Comparative Benefit Model : for this situation
assume that an organization have many
projects to consider, perhaps several dozens.
senior management would like to select a
subset of the projects that would most benefit
the firm, but the projects do not seem to be
easily comparable.
The concept of comparative benefits , if not a
formal model, is widely adopted for selection
decision on all sorts of projects.
Numeric models: profit/profitability
A large majority of firms use projects evaluation and selection
models use profitability as the sole measure of acceptability.
Payback period: the payback period is the initial investment for the
project in the project divided by the estimated annual inflow from the
project.
Payback period= initial investment / annual net cash inflow
Average rate of return: the average rate of return is the ratio of the
average annual profit to the initial or average investment in the
profit.
Average rate of return = the average annual profit/ average
investment in the project.
Discounted cash flow: also known as NPV. The discounted cash
flow method determines the net presenter value of all cash flows by
discounting the required rate of return as follows:
Cont…
Discounted cash flow:
also known as NPV.
The discounted cash
flow method
determines the net
presenter value of all
cash flows by
discounting the
required rate of return
as follows:
Analysis Under Uncertainty- The
Management of Risk.
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Risk has been interpreted as being about project tasks during
and/or costs, but uncertainty plagues all aspects of the work on
projects and is present in all stages of life cycle. So it is important
to consider uncertainty as it affects the selection process.
Before proceeding forward it is necessary to distinguish between
‘risk’ and ‘ uncertainty’.
The outcome of this decision depends on 2 things.
What the decision maker does
What nature does.
Nature being the set of exogenous factors that interact with the
decision maker's coarse of action to produce an outcome.
If the decision maker knows the profitability of each and every
state of nature and thus of each and every outcome, he can find
the expected value of each alternative course of action he does.
The expected value of an action is the sum of the values of each
outcome associated with action times the probability that it will
occur.
Cont…
She can select the course of action associated with best
of these expected outcomes. This is decision making
under conditions of risk.
If the decision maker’s information is not so complete
and he does not know and cannot collect sufficient data
to determine the probability of occurrence for some
states of nature, she cannot find the expected value foe
each of his alternative actions. This is decision making
under conditions of uncertainty.
If the decision maker elects to ignore all states of nature
except the one she thinks most likely, she then assumes
there is one and only one possible outcome- which is
decision making under conditions of certainty.
Cont…
We try to reduce such uncertainty by the
preparation of pro forma documents. Pro forma
profit and loss statements and break even charts
are example of such documents.
Risk analysis is a method on such a procedure.
With the great availability of microcomputers and
user-friendly software( e.g. crystal ball) , these
procedures are becoming very common.
Project Portfolio Process
The PPP is the attempt to link the
organization’s goals directly to the goals
and strategies of the organization.
this occurs not only in the project’s
initiation and planning stage, but also
throughout the life cycle of the projects as
they are managed and eventually brought
to completion.
Purpose of PPP
If the goals and strategies have been well articulated, however,
then the PPP can serve many purposes:
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To identify projects and non projects.
To prioritize the list of available projects
Manage important projects
Identify projects best fitted for organization’s objectives.
Identify projects serving multiple goals and supporting other
projects
Eliminate projects incurring excessive risk. Or cost
Eliminate projects bypassing formal selection process with no
benefits corresponding to risk/ Or cost
Keep the organization being overloaded by resource available
To balance the resource with the needs
To balance short, medium and long tern returns.
Steps in PPP
The steps in this process follows those described in
Longman, Sandahl, and spier(1999).
Step 1: establish a project council
Step 2 : identify project categories and criteria.
1. Derivative projects
2. Platform projects
3. Breakthrough projects.
4. R & D projects.
Steps in PPP
Step 3 : collect project data
Step 3 : Assess Resource availability
Step 5: Reduce the project and criteria select.
Step 6 : Prioritize the projects within Categories
Step 7 : Select the projects to be funded and held in
reserve.
Step 8 : implement the process.