PM Chapter 2

1. What are the four parts of a technical proposal?

(1) the nature of the technical problem and how it is to be approached; (2) the plan for implementing the project once it has been accepted; (3) the plan for logistic support and administration of the project; and (4) a description of the group proposing to do the work, plus its past experience in similar work.

Simulation

A technique for emulating a process, usually conducted a considerable number of times to understand the process better and measure its outcomes under different policies.

Model

A way of looking at reality, usually for the purpose of abstracting and simplifying it, to make it understandable in a particular context

Sensitivity analysis

Investigation of the effect on the outcome of changing some parameters or data in the procedure or model.

5:Give an example of a Q-Sort process for project selection

Q-Sort is a nonnumeric technique managers can use to evaluate comparative benefits associated with a list of potential projects. This type of selection model is useful when a goal has many potential alternatives for implementation. For example, what experiments should NASA engineers include in the next Mars Probe? What projects should be included in the company's R&D portfolio? Which archeology projects would best illustrate the lifestyle of the cave dwellers that inhabited Colorado in the first millennium AD? A company may use this method to evaluate several projects to choose from. The potential projects could be grouped by the level of strategic importance, then by cost, then by time required to complete. By using this method, the "best" projects to start could be selected using these criteria.

2. By what criteria do you think managers judge selection models? What criteria should they use?

1. Realism The model should reflect the reality of the firm's decision situation, especially the multiple objectives of both the firm and its managers, bearing in mind that without a common measurement system, direct comparison of different projects is impossible. The model should also take into account the realities of the firm's limitations on facilities, capital, personnel, and so forth, and include factors that reflect project technical and market risks: performance, cost, time, customer rejection, and implementation. 2. Capability The model should be sophisticated enough to deal with the relevant factors: multiple time periods, situations both internal and external to the project (e.g., strikes, interest rate changes), and so on. 3. Flexibility The model should give valid results within the range of conditions that the firm might experience. It should be easy to modify in response to changes in the firm's environment; for example, tax law changes, new technological advancements that alter risk levels, and, above all, organizational goal changes. 4. Ease of use The model should be reasonably convenient, not take a long time to execute, and be easy to use and understand. It should not require special interpretation, data that are difficult to acquire, excessive personnel, or unavailable equipment. 5. Cost Data-gathering and modeling costs should be low relative to the cost of the project and less than the potential benefits of the project. All costs should be considered, including the costs of data management and of running the model. We would add the following sixth criterion. 6. Easy computerization It should be easy and convenient to gather and store the information in a computer database, and to manipulate data in the model through use of a widely available, standard computer package such as Excel®

Decision Support System

A computer package and data base to aid managers in making decisions. It may include simulation programs, mathematical programming routines, and decision rules

Expert System

A computer package that captures the knowledge of recognized experts in an area and can make inferences about a problem based on decision rules and data input to the package.

Delphi

A formalized method of group decision making that facilitates drawing on the knowledge of experts in the group

Network

A group of items connected by some common mechanism

Portfolio

A group or set of projects with varying characteristics.

12:Describe the eight-step project portfolio management process

A portfolio contains projects undertaken to support business goals. The eight-step project portfolio process of is as follows: 1) Establish a project council 2) Identify project categories and criteria 3) Collect project data 4) Assess resource availability 5) Reduce the project and criteria set 6) Prioritize the projects within categories 7) Select the projects to be funded and held in reserve 8) Implement the process

Risk analysis

A procedure that uses a distribution of input factors and probabilities and returns a range of outcomes and their probabilities.

9:What are some advantages and disadvantages of the profit/profitability numeric models?

A profitability model will assess the financial gain on the use of capital during a period of operations. Profitability models as a general class of models have advantages and disadvantages that include: Advantages: 1) They are simple to use and understand. 2) Relevant data are available from the accounting system. 3) Business decision makers are familiar with the output formats. 4) With a few exceptions, model output is on an "absolute" profit/profitability scale and allows "absolute" go/no-go decisions. 5) Some profitability models can be amended to account for project risk. Disadvantages: 1) Except for risk factors, these models ignore other nonmonetary factors. 2) Some of the profitability models do not evaluate the timing of cash flows. 3) Presentvalue models have a short-term bias that tends to ignore long-run opportunities. 4) Payback-type models ignore cash flows beyond the payback period. 5) The internal rate return model can generate multiple solutions. 6) All models in this class are sensitive to data input errors, especially during the early periods of the project's planning horizon. 7) Discounting models are nonlinear. Hence, decisionmakers are seldom able to recognize the impact of changes (or errors) in the values of parameters used in the models. 8) All these models depend on input for the determination of cash flows, but it is not clear exactly how the concept of cash flow is properly defined for the purpose of evaluating projects.

Programming

An algorithmic methodology for solving a particular type of complex problem, usually conducted on a computer.

Project portfolio process

An eight-step procedure for selecting, implementing, and reviewing projects that will help an organization achieve its strategic goals

3. Contrast the competitive necessity model with the operating necessity model. What are the advantages and disadvantages of each?

Both models are examples of nonnumeric models. Moreover, both models will tend to sustain an existing status quo and are subject to misuse in pursuit of hidden agendas of key stakeholders. 1) Operating Necessity Model: The operating necessity project is perceived as a necessity to maintain the status quo for operations. If the plant is flooded by a hurricane, it's an operating necessity to dry it out and restore production. The advantage of this model is that it involves little data and fairly obvious decisions. The disadvantage is that relying on it to solve problems may mask a long-term issue that needs to be solved in a manner other than firefighting. Perhaps, for example, the plant needs to be moved to a different location to prevent frequent flooding. 2) Competitive Necessity Model: The competitive necessity project is perceived as a necessity to keep from losing the current competitive position. For example, a video rental chain that operates in physical stores might decide to add an Internet based ordering facility to stay competitive with Internetonly operations.The decision making process can seem simple, but the danger is similar to the operating necessity model. The "obvious" decision on what to do quickly to maintain a competitive position may, in fact, be the wrong thing to do in the long run.

4:What is a sacred cow? Give some examples

In the United States, the term "sacred cow" has become an idiom used to denote someone or something that is exempt from criticism. A senior manager's blind loyalty to an obsolete product or process they introduced to the company long ago is an example of a sacred cow. Another example would be a company's loyalty to a product line, like Hershey to chocolate, even if it were a money loser

What does the term "project management maturity" mean?

In the context of the text, maturity is "the sophistication and experience of an organization in managing multiple projects."

6:What are some of the limitations of project selection models?

Models, like projects, have characteristics that influence when a decision-maker should use the model. Models cannot make decisions for its user. The user should understand the advantages and disadvantages of each model in reference to the goals associated with the scenario's reality. Each model will provide a limited viewpoint about the reality it represents. It may be beneficial to consider the model's appropriateness from different perspectives before actually using it to evaluate selection alternatives. Although not specifically mentioned in the text, the following can be influenced as well: 1) The applicability of a model is one such characteristic that reflects the range of scenarios that the model can reasonably support. 2) The model should make a scenario more understandable by reducing its complexity. However, when a model reduces a scenario's complexity, an important distortion of the scenario may also be experienced. The distortion may happen because many important factors have been left out of the model in order to make it easier to use or more understandable to the user. 3) Models are only as good as the data they receive. Bad data will lead to a bad analysis.

14: Where do most firms fall on the maturity scale?

Most firms do not score very well in terms of maturity. Of the firms surveyed, about three-quarters of the firms are no higher than level 2 (planned) and fewer than 6 percent are above level 3 (managed).

Deterministic

Predetermined, with no possibility of an alternate outcome. Compare with stochastic.

Stochastic

Probabilistic, or not deterministic.

7:Contrast the real options selection approach with profitability models.

Profitability models analyze a potential project using a single criterion-monetary return. Time value of money may or may not be included in this analysis. Real options models are based on the concept of investing now to create opportunities for the future. This model analyzes a potential project in terms of options it generates for a firm in the future. The investment may or may not be profitable or beneficial.

Pro forma

Projected or anticipated, usually applied to financial data such as balance sheets and income statements.

10:What is the desired result of applying project portfolio management? What do firms usually find happens?

The desired result is to evaluate each of the projects and continue with those that are closely related to the organization's mission, goals, and strategy. The project portfolio process also helps in monitoring and controlling the organization's strategic projects. Usually many firms find that only a few projects are checked for alignment with the organization's strategy before granting approval for a project. Thus, these kinds of projects neither add value nor help in gaining competitive advantage in accordance with the goals of a firm.

11:Describe the discovery-driven planning approach

The discovery driven planning approach model funds a portion of the project and tries to determine two important aspects about the project: the critical assumptions and the cost of testing each assumption. Analyzing the assumptions enables the management team to find out if a project continues to be as promising as was believed or a change of strategy is required.

How does the discounted cash flow method answer some of the criticisms of the payback period and average rate of return methods?

The models in this question fall into the general category of profitability models. 1) A payback-type model ignores cash flows beyond the payback period. Discounted cash flow method does not ignore cash flows beyond the payback period. 2) The payback-type modeland rate of return model donot include discounting, ignores the timing of the cash flows and time-value of money. The discounted cash flow method is a model that includes discounting and does not ignore the timing of the cash flows and the time-value of money

Maturity

The sophistication and experience of an organization in managing multiple projects.