In Chapter 1
Projects are defined as temporary endeavors undertaken to create a
unique product or service.
Recent interest in project management is based on a recognition that
many organizational tasks do not fit neatly into business-as-usual.
The significant differences between project management and general
management are overviewed.
The three interrelated objectives of budget, schedule, and
specifications are also 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.
The chapter concludes with a discussion of the aggregate project plan
and an overview of the organization of the remainder of the text.
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Why the emphasis on project
management?
 Many tasks do not fit neatly into business-asusual.
 A project is 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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Characteristics of Projects
 Main Characteristics
 Unique
 Specific Deliverable
 Specific Due Date
 Other Characteristics




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Multidisciplinary
Complex
Conflict
Part of Programs
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PMI Definition
“A project is a unique temporary endeavor,
with a set beginning and end ”
PMI defines project management as
“the application of knowledge,
skills, tools and techniques to a
broad range of activities in order to
meet the requirements of a
particular project “
Project Management Institute, 2007
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Goals and Trade-offs
 The three goals of a project are:
 On time,
 On budget, and
 To specification (i.e., including “quality” and “client
satisfaction”).
 The project manager meets the goals by making
“trade-offs.” For example, he/she can shorten the
project duration by using more resources.
 An overdetermined project is one that has a fixed
budget, fixed delivery time, and fixed specifications .
In the case of an overdetermined project, there is no
allowance for any such events.
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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. Anything one side
wins is a loss for the other side. In 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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Project Life Cycle
The main reason one should understand the
difference is that resource allocation for the two
types is quite different.
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Qualitative Selection Methods
The Sacred Cow
 A project proposed say by the CEO
The Operating/Competitive Necessity
 It is required to continue our operations
 We may loose our market share
Comparative Benefits
 Q-sort
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The Q-Sort Method
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Quantitative Selection Methods
 Financial Assessment Methods
 payback period
 discounted cash flow
 Scoring Methods
 unweighted 0-1 factor method
 weighted factor scoring method
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Payback Period
Initial Fixed Investment
Annual Net Cash Inflows
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Discounted Cash Flow
n
Ft
NPV (project)  - I 0  
t
t 1 (1  k )
where
I0 = the initial investment
Ft = the net cash flow in period t
k = the required rate of return or hurdle rate
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The Weighted Scoring Model
n
Si   sij w j
j 1
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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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.
That is why we need trade-off
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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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Project Portfolio Process (PPP)
PPP links projects to the goals and strategy 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 their risks or their
costs. Or because another project does a better
job of supporting the goals.
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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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Step 1: Establish a Project Council
Establish and articulate strategic direction for
projects.
Allocate funds and control the allocation of
resources and skills to the projects.
Senior management, project managers of major
projects; the head of the Project Management
Office, particularly relevant general managers.
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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 then to
the organization's goals and strategies.
Identify the categories that are important to
achieving the organization's goals.
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Wheelwright and Clark (1992) position particularly product /service projects
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Wheelwright and Clark (1992) positioning
Derivative projects: With objectives or deliverables
that are incrementally different in both product and
process from existing offerings. They 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/service itself or
the process used to make and deliver it, or both. 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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Wheelwright and Clark (1992) positioning
Breakthrough projects: Involve a newer technology
than platform projects. It may be a "disruptive"
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: 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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Wheelwright and Clark (1992) positioning
Graph on page 29 goes here
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Wheelwright and Clark (1992) positioning
The size  size/resource needs.
The shape and shade  internal/ external,
long/medium/short term.
The numbers  the order, or time frame, in which
the projects are to be implemented, separated
by category.
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Benefits of the Aggregate Project Plan
 View the mix of projects within each aspect (shape)
 Analyze and adjust the mix of projects within each
category or aspect
 Assess the resource demands on the organization,
indicated by the size, timing, and number of projects
 Identify and adjust the gaps in the categories, aspects,
sizes, and timing of the projects
 Identify potential career paths for developing project
managers, such as team members of a derivative
project, then team member of a platform project,
manager of a derivative project, member of a
breakthrough project, and so on
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Analyzing Project Portfolios:
Bubble Diagram
Prob. of Commercial Success
High
Shapes
Shading
Zero
High
Expected NPV
Color
Size
Low
Bubble diagrams are useful for representing a set of projects and visualizing
a project portfolio.
26
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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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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Step 5: Reduce the Project and Criteria
Set
Reduce the number of projects based on:
supporting the organization's goals, existence of
competence in the organization, market
potentials, profitability, potential partners,
availability and timing of resources,
technological/knowledge fit with the
organization, using the organizations strengths,
synergy with other projects, other mutually
exclusive projects, slipped in desirability since
the last evaluation.
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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 (Dalkey, 1969), pairwise 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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Step 7: Select the Projects to be Funded
and Held in Reserve
Determine the mix of projects across the various
categories (and aspects, if used) and time
periods.
Leave 10-15 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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Step 8: Implement the Process
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