Slide 1
Foundations of Project Management
Module 2: Project Initiation and Integration
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Session Outline
1. Project Initiation and Selection 2. Project Integration Management
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Project Initiation Initiating a project includes recognizing and
starting a new project or project phase Some organizations use a pre-initiation
phase, while others include items like developing a business case as part of initiation
The main goal is to formally select and kick-off projects
Key outputs include: Assigning the project manager Identifying key stakeholders Completing a business case Completing a project charter and getting signatures on
it
Initiating Processes
4.1 Develop Project Charter
13.1 Identify Stakeholders
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4.1 Develop Project Charter
Outputs 1. Project Charter
Inputs 1. Project
Statement of Work
2. Business Case 3. Agreements 4. Enterprise
Environmental Factors
5. Organizational Process Assets
Tools and Techniques 1. Expert Judgment 2. Facilitation
Techniques
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Business Case Template
Source: IT Project Management, J Marchewka, J Wiley & Sons
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The Project Charter
Process of formalizing projects after deciding what project to work on
A project charter is a document that formally authorizes the existence of a project and provides direction on the projects objectives and management
Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project
PMBOK: p.71 Schwalbe: p.157
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Project Charter Questions
What business need is the project undertaken to address? What is the purpose of the project? What organizational strategic objectives is this project meant to
achieve? What factors, criteria or tools are you using for your justification? What are the customers priorities and in what order? Schedule, cost,
quality and scope? What is your customers risk tolerance to changes in schedule, cost and
scope? What are the project Requirements that will meet customer, sponsor or
other stakeholder needs, wants and expectations? What are Stakeholder Influences? What Human Resources will the project require? What are the projects key Deliverables & Milestones?
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Project Statement of Work The Statement of Work (SOW) is a
narrative description of products or services to be delivered by the project
The SOW indicates the business need, the product scope description, and the strategic plan
Business Case Provides the necessary information
from a business standpoint to determine whether or not the project is worth the required investment
Agreements Any contract, letter, note, e-mail or
other communication describing intent. Contracts most common for external customers.
Develop Project Charter Inputs (4.1.1) Enterprise
Environmental Factors Governmental or industry
standards Organization infrastructure Marketplace conditions
Organizational Process Assets Organizational standard
processes, policies, and standardized process definitions
Templates Lessons learned
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Project Kickoff Meeting The purpose of the kickoff meeting is to formally notify all team members, clients, and stakeholders that the project has begun
A kick-off meeting has some basic objectives: Introduce the people at the meeting
Recap the information in the Project Charter, including the purpose of the project, the scope, the major deliverables, the risks, the assumptions, the estimated effort and budget, and the deadline
Discuss the major roles and responsibilities of the project team, clients and stakeholders
Discuss the project management procedures
Discuss and answer any outstanding questions
Confirm that the project is now underway
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Identify Stakeholders (13.1) Is the process of identifying all people or organizations impacted by project, and documenting relevant information regarding their interests, involvement, and impact on project success
Outputs
1. Stakeholder register
Inputs
1. Project charter 2. Procurement
documents 3. Enterprise
environmental factors
4. Organizational process assets
Tools and Techniques
1. Stakeholder analysis
2. Expert judgment 3. Meetings
This process is part of the Stakeholder Management Knowledge Area
Section will be discussed further in Project Stakeholder
Management
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Project Stakeholders
Government Agencies
Contractors
External Partners
Suppliers
The Public and/or
Community
External Customers
Project Team Project Sponsor
Functional Departments in Organizations
Internal Customers
Internal Partners
Performing Organization
Project
11 PMBOK:p.30 Schwalbe: p512
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Stakeholder Roles
Stakeholder Role and Responsibility
Sponsor Provides approval, authority & guidance
Project Manager Defines, plans, implements and controls project
Project Team Provides the knowledge and skills and performs the work to implement & control project
Customer Defines product requirements and funds the project
Functional Managers Provide the organizations policies and sector-specific knowledge and experience
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Project Selection
Benefit Measurement Framework
Decision Models
Project Selection Process
Projects Product Description
Projects Selection Framework
Organizations Strategic Plan
Project Knowledge Base and Historical
Information
Project Selected
Project Denied
Project Charter Assigned PM Constraints Assumptions
Lessons Learned
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Methods for Selecting Projects There are usually more projects than available time
and resources to implement them Project Selection Criteria
Generation of alternative ideas for project Estimation of investment costs and benefits Analysis of the cost/benefits of each alternative Selection and implementation of appropriate Strategy Evaluation of outcome of implemented investment
ROI PBP DCF NPV IRR
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Project Selection Example A Project task can be implemented by either Machine A or Machine B. The original investment and cash flow from the two machines are shown below
Original Investment $ 35,000 Year Cash Flow 1 20,000 2 15,000 3 10,000 4 10,000 Total Cash Flow 55,000 Profit 20,000
Machine A Machine B
Original Investment $ 35,000 Year Cash Flow 1 10,000 2 10,000 3 15,000 4 20,000 Total Cash Flow 55,000 Profit 20,000
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Return on Investment Return on investment (ROI) is calculated by subtracting
the project costs from the benefits and then dividing by the costs ROI = (total discounted benefits - total discounted costs) / discounted
costs The higher the ROI, the better Many organizations have a required rate of return or
minimum acceptable rate of return on investment for projects
Internal rate of return (IRR) can by calculated by finding the discount rate that makes the NPV equal to zero
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Return On Investment (ROI) ROI = [Average Annual Profit/Org. Investment] x 100
Original Investment $ 35,000 Year Cash Flow 1 20,000 2 15,000 3 10,000 4 10,000 Total Cash Flow 55,000 Profit 20,000 Profit/Yr. : (55K 35K)/4 = 5000 ROI: (5K/35K) x 100 = 14%
Machine A Machine B
Original Investment $ 35,000 Year Cash Flow 1 10,000 2 10,000 3 15,000 4 20,000 Total Cash Flow 55,000 Profit 20,000 Profit/Yr. : (55K 35K)/4 = 5000 ROI: (5K/35K) x 100 = 14%
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Payback Analysis Another important financial consideration is 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
Payback occurs when the net cumulative discounted benefits equals the costs
Many organizations want IT projects to have a fairly short payback period
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Pay Back Period (PBP) PBP is the time taken to gain Financial Return equal to the Original Investment
Original Investment $ 35,000 Year Cash Flow 1 20,000 2 15,000 3 10,000 4 10,000 Total Revenue 55,000 PBP = 2
Machine A Machine B
Original Investment $ 35,000 Year Cash Flow 1 10,000 2 10,000 3 15,000 4 20,000 Total Revenue 55,000 PBP = 3
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Discounted Cash Value DCV ( Time Value of Money)
(Cash flow n years from today)
DCV = ( 1+ r )n
DCV = present value of future cash r = interest Rate n = number of years from today when cash flow occurs
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Time Value of Money Tables
No of Years 5% 10% 20%
1 .9524 .9091 .8333 2 .9070 .8264 .6944 3 .8638 .7513 .5787 4 .8227 .6830 .4823 5 .7835 .6209 .4019 6 .7462 .5645 .3349 7 .7107 .5132 .2791 8 .6768 .4665 .2325 9 .6446 .4241 .1938 10 .6139 .3855 .1615
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Future & Discounted Value of Money
The Present (Discounted) Value of a future income of $1000 at an interest rate of 10% is:
1 year $909.10 2 years $826.40 10 years $385.50
The Future Value of a $ 1000 investment at an
interest rate of 10% is: 1 year $1,100.00 2 years $1,210.00 10 years $2,594.00
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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
Projects with a positive NPV should be considered if financial value is a key criterion
The higher the NPV, the better
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Net Present Value = DCF - Initial Investment
Machine A: Initial Investment= $ 35,000, Interest Rate = 20%
Year 1 2 3 4
Cash Flow
20,000 15,000 10,000 10,000
Present Value
20,000 x .8333 = 16,666
15,000 x .6944 = 10,416
10,000 x .5787 = 5,878
10,000 x .4823
=4,823 Total Present Value = 16,666 + 10,416 + 5,878 + 4,823 = 37,783 Net Present Value NPV = 37,783 35,000 = 2,783
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Net Present Value = DCF - Initial Investment Machine B: Initial Investment= $ 35,000, Interest Rate = 20%
Year 1 2 3 4
Cash Flow
10,000 10,000 15,000 20,000
Present Value
10,000 x .8333 = 8,333
10,000 x .6944 = 6,944
15,000 x .5787 = 8,681
20,000 x .4823
=9,646 Total Present Value = 8,333 + 6,944 + 8,681 + 9,646 = 33,604 Net Present Value NPV = 33,604 35,000 = (- 1,396)
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Internal Rate of Return (IRR) IRR is the rate of growth a project is expected to generate. It is an indicator of the efficiency or quality of an investment.
The Internal Rate of Return is the Value of the Discount Rate at which the NPV is equal to zero, or at which DCF equals the Initial Investment.
CF/ (1 + IRR)n = Initial Investment
The value of IRR is usually obtained by an iterative process.
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Uncertain Event
Expected Monetary Value and Decision Trees
Decision
O11
O12
O21
O22
Decision Node
Probability of Outcome
Potential Outcome
Expected Monetary
Value
P11 x O11
P12 x O12
P21 x O21
P22 x O22
EMV1 = P11 x O11 + P12 x O12 EMV2 = P21 x O21 + P22 x O22 27
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Example: Choosing between 2 Projects
$28,000
$30,000 =
=
60,000
-32,000
42,000
-2,000
-10,000
+
+
+
Profit of $300,000
Loss of $40,000
Profit of $60,000
Loss of $20,000
Loss of $50,000
20%
80%
70%
10%
20%
Bid on Project 1
Bid on Project 2
Decision
Possible choices
Outcome probability
Potential outcome EMV per
outcome Total EMV
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Balanced Scorecard Approach
Innovation and Learning Perspective How do we keep getting better?
Financial Perspective How do we look to our shareholders or to those who provide funding to us?
Customer Perspective How do we look to our customers and other stakeholders?
Internal Processes Perspective What internal processes we must excel at in order to attract and retain our customers and other key stakeholders?
Source: IT Project Management, J Marchewka, J Wiley & Sons
It is a performance management approach that involves measuring a companys vision and strategy via four perspectives. By balancing internal process measurement and financial results with customer feedback, the performance picture becomes complete.
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Project Integration Management
Project Integration Management includes the processes and activities needed to identify, define, combine, unify and coordinate the various processes and project management activities
Integration includes characteristics of unification, consolidation, articulation and integrative actions that are crucial to project completion
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Project Integration Management Processes 4.1 Develop Project Charter: working with stakeholders to
create the document that formally authorizes a project 4.2 Develop Project Management Plan: coordinating all
planning efforts to create a consistent, coherent document 4.3 Direct and Manage Project Work: carrying out the project
management plan by performing the activities included in it 4.4 Monitor and Control Project Work: overseeing project
work to meet the performance objectives of the project 4.5 Perform Integrated Change Control: coordinating changes
that affect the projects deliverables and organizational process assets
4.6 Close Project or Phase: finalizing all project activities to formally close the project
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4.2 Develop Project Management Plan The process of documenting the actions necessary to define, prepare, integrate
and coordinate all subsidiary plans.
Outputs
1. Project management plan
Inputs
1. Project charter 2. Outputs from other
processes 3. Enterprise
environmental factors
4. Organizational process assets
Tools and Techniques
1. Expert judgment 2. Facilitation
techniques
The Project Management Plan defines how the project is executed, monitored, controlled and closed.
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Project Management Plan A Project Management Plan consolidates other subsidiary management plans
including: Scope management plan Requirement management plan Schedule management plan Cost management plan Quality management plan Process improvement plan Human resource plan Communication management plan Risk management plan Procurement management plan
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Project Management Plan (continued) A Project Management Plan includes:
Project Charter Budget Schedule Resources Scope Statement WBS Responsibility charts/assignments Management Plans
The Project Management Plan also includes project baselines, including: Schedule baseline Cost performance baseline and Scope baseline
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4.3 Direct and Manage Project Work Is the process of performing the work defined in the project management
plan to achieve the projects objectives.
Outputs
1. Deliverables 2. Work
performance data 3. Change requests 4. Project
management plan updates
5. Project documents updates
Inputs
1. Project management plan
2. Approved change requests
3. Enterprise environmental factors
4. Organizational process assets
Tools and Techniques
1. Expert judgment 2. Project
management information systems
3. Meetings
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Direct and Manage Project Execution The process includes:
Perform activities to accomplish project requirements Create project deliverables Staff, train, and manage the team members assigned Obtain, manage, and use resources Implement the planned methods Establish and manage project communication channels Generate project data, such as cost, schedule, technical progress, and
status Manage risks and implement risk response activities Manage sellers and suppliers Collect and document lessons learned
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4.4 Monitor and Control Project Work Is the process of tracking, reviewing, and regulating the progress to meet
the performance objectives defined in the project management plan.
Outputs
1. Change requests 2. Project
management plan updates
3. Project documents updates
Inputs
1. Project management plan
2. Schedule forecasts 3. Cost forecasts 4. Validated changes 5. Work performance
information 6. Enterprise
environmental factors
7. Organizational process assets
Tools and Techniques
1. Expert judgment 2. Analytical
techniques 3. Project
management information system
4. Meetings
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Monitor and Control Project Work The process is concerned with:
Comparing actual project performance against the project management plan
Assessing performance to determine whether corrective or preventive actions are required
Identifying new risks, and analyzing, tracking, and monitoring existing project risks
Maintaining an accurate, timely information base concerning the projects product
Providing information to support status reporting, and forecasting Monitoring implementation of approved changes as they occur
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4.5 Perform Integrated Change Control Is the process of reviewing all change requests, approving changes and managing changes to the deliverables, organizational process assets, project documents and
the project management plan
Outputs
1. Approved change requests
2. Change log 3. Project
management plan updates
4. Project documents updates
Inputs
1. Project management plan
2. Work performance information
3. Change requests 4. Enterprise
environmental factors
5. Organizational process assets
Tools and Techniques
1. Expert judgment 2. Meetings 3. Change control tools
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Perform Integrated Change Control Configuration management with change control provides a
standardized, effective and efficient process to centrally manage changes within a project.
It includes identifying, documenting, and controlling changes to the baseline
Project wide application of configuration management system, including change control processes, has three main objectives:
Establishes an evolutionary method to consistently identify and request changes to the established baselines, and to assess the value and effectiveness of those changes
Provides opportunities to continuously validate and improve the project by considering the impact of each change.
Provides the mechanism for the project management team to consistently communicate all changes to the stakeholders
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4.6 Close Project or Phase Is the process of finalizing all activities across all the Project Management
Process Groups to formally complete the project or phase
Outputs
1. Final product, service or result transition
2. Organizational process assets updates
Inputs
1. Project management plan
2. Accepted deliverables
3. Organizational process assets
Tools and Techniques
1. Expert judgment 2. Analytical
techniques 3. Meetings
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Close Project or Phase The act of completing a project or a phase of a project, either because it has been completed or because it has been terminated early.
The close project or phase process also establishes the procedures to investigate and document the reasons for actions taken if a project is terminated before completion
Includes all of the activities necessary for administrative closure of the project or phase
Also includes Releasing team members Celebration of completion
Foundations of Project ManagementSession OutlineProject Initiation4.1 Develop Project Charter Business Case TemplateThe Project CharterProject Charter QuestionsSlide Number 8Project Kickoff MeetingSlide Number 10Project StakeholdersStakeholder Roles Project SelectionMethods for Selecting ProjectsProject Selection ExampleA Project task can be implemented by either Machine A or Machine B. The original investment and cash flow from the two machines are shown below Return on InvestmentReturn On Investment (ROI)ROI = [Average Annual Profit/Org. Investment] x 100Payback AnalysisPay Back Period (PBP)PBP is the time taken to gain Financial Return equal to the Original InvestmentDiscounted Cash Value DCV( Time Value of Money)Time Value of Money TablesFuture & Discounted Value of MoneyNet Present Value AnalysisNet Present Value = DCF - Initial InvestmentNet Present Value = DCF - Initial InvestmentInternal Rate of Return (IRR)IRR is the rate of growth a project is expected to generate.It is an indicator of the efficiency or quality of an investment.Expected Monetary Value and Decision TreesExample: Choosing between 2 ProjectsBalanced Scorecard ApproachProject Integration ManagementProject Integration Management ProcessesSlide Number 32Project Management Plan Project Management Plan (continued) Slide Number 35Direct and Manage Project ExecutionSlide Number 37Monitor and Control Project WorkSlide Number 39Perform Integrated Change ControlSlide Number 41Close Project or Phase