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Close the project: finalizing all project activities to formally close the project
Before We Have a Project….Project Selection Methods….
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Strategic Planning and Project Selection
Strategic planning involves determining long-term objectives, predicting future trends, and projecting the need for new products and services
As part of strategic planning, organizations:1. Identify potential projects2. Use realistic methods to select which projects to work
on3. Formalize project initiation by issuing a project
charter
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Methods for Selecting Projects There are usually more projects than available
time and resources to implement them Methods for selecting projects include:
1. Performing net present value (NPV) or other financial analyses
2. Using a weighted scoring model3. Implementing a balanced scorecard
But for some projects, they may be selected because of a directive from management or Government
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Financial Analysis of Projects
Financial considerations are often an important consideration in selecting projects
Four primary methods for determining the projected financial value of projectsNet present value (NPV) analysisReturn on investment (ROI)Internal Rate of Return (IRR)Payback analysis
Discounted Cash FlowMoney in the future is worth less than money
received todayThe future value (FV) is calculated as
FV = PV(1+i)n where i is the interest rate, PV the present value, n the no. of periods
PV = FV/(1+i)n
Example: FV of $2000 is $2315.25 if i = 5%, n = 3
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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
= Total discounted benefits – Total discounted costs
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Choose A Project to Invest
NPV of Project A = 87K; NPV of Project B = 57K ??NPV of Project A = -87K; NPV of Project B = 57K ??NPV of Project A = -87K; NPV of Project B = -57K ??
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Net Present Value Analysis
The higher the NPV, the betterProjects with a positive NPV should
be considered if financial value is a key criterion
Figure 4-4: JWD Consulting NPV Example
Multiplyby thediscountfactor eachyear, then take cum.benefits –costs toget NPV
Note: See the template called business_case_financials.xls
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Return on Investment (ROI)
ROI = (total discounted benefits - total discounted costs) / discounted costs
The higher the ROI, the better
Internal Rate of Return (IRR)Rate at which the total discounted benefits
and total discounted costs are equalThe discount rate when NPV = 0Difficult to calculateThe higher the better
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Payback Analysis
The 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
Time when NPV = 0The shorter the better
Figure 4-5: Charting the Payback Period
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Figure 4-4: JWD Consulting NPV Example
Multiplyby thediscountfactor eachyear, then take cum.benefits –costs toget NPV
Note: See the template called business_case_financials.xls
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Weighted Scoring Model A weighted scoring model is a tool that provides
a systematic process for selecting projects based on many criteria
1. Identify criteria important to the project selection process
2. Assign weights (percentages) to each criterion so they add up to 100%
3. Assign scores to each criterion for each project4. Multiply the scores by the weights and get the total
weighted scores The higher the weighted score, the better
Figure 4-6: Sample Weighted Scoring Model for Project Selection
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Implementing a Balanced ScorecardTo help select and manage projects that align with
business strategyA balanced scorecard:
Is a methodology that converts an organization’s value drivers to a series of defined metrics. Examples of such drivers are
See www.balancedscorecard.org for more information
Quick Quiz
Project A Project B Choose
NPV $87K $57K
ROI 50% 40%
IRR 12% 15%
Payback Period 15 months 12 months
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Project Charter ….
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Project ChartersAfter deciding what project to work on, it is
important to let the rest of the organization know, especially the key stakeholders
A project charter is a document that formally recognizes the existence of a project and provides direction on the project’s objectives and management
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Sample Project CharterProject Title and Description
What is the project ? Brief background and purpose
Project Manager Assigned and Authority LevelWho is given authority to lead the project. Can he/she determine budget, schedule, staffing etc??
Business NeedWhy is the project being done?
Project Justification Business case
Resources Pre-assignedStakeholders (and their requirements)
Requirements related to both project and product
Product Description/DeliverablesList of the deliverables and their descriptions
Constraints and AssumptionsSigned and Approved By
Has to be a person from senior management
Another Sample Project Charter
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Project Management Plan ….
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Project Management PlansA project management plan is your plan on how to
manage the project, e.g. How do you define the scope? How to deal with changes? How to do estimation? How to identify risks? How to communicate with stakeholders?
Plans created in the other knowledge areas are subsidiary parts of the overall project management plan, like
Scope Management Plan Staffing Management Plan Etc.
Integrated Change Control….
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Change Control SystemThe Project Management Plan provides the
baseline for identifying and controlling project changes
A baseline is the approved project management plan plus approved changesUsed for comparing with actual
A formal, documented process that describes when and how official project documents and work may be changed
Describes who is authorized to make changes and how to make them
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Change Control Board (CCB)A formal group of people responsible for
approving or rejecting changes on a projectCCBs provide guidelines for preparing change
requests, evaluate change requests, and manage the implementation of approved changes
Includes stakeholders from the entire organization
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Configuration ManagementPart of change managementEnsures that the descriptions of the project’s
products are correct and complete, including their support documentation
Configuration management specialistsidentify and document configuration requirementscontrol changesrecord and report changesaudit the products to verify conformance to