Project Mgmt CH 2
Implementation answers _____________________, given available resources
"how strategies will be realized"
Formulating strategy answers ______________________ to reach goals Formulating the strategy includes ___________________________________ _________________________________________________
"what needs to be done" includes determining and evaluating alternatives that support the organization's goals and selecting the best alternative
Mission identifies ____________________________
"what we want to become"
Weighted scoring approach advantages: (6)
Bringing projects to closer alignment with strategic goals If scoring model is published and available to everyone in organ, some discipline and credibility are attached to the selection of projects Number of wasteful projects using resources is reduced Politics and "sacred cow" projects are exposed Project goals are more easily identified and communicated using the selection criteria as corroboration Helps project managers understand how their project was selected, how their project contributes to the organ goals, and how it compares with other projects
Nonfinancial criteria: Portfolio management requires multi-criteria screening models because no single criterion can reflect strategic significance 2 types of Multi-Criteria Selection Models:
1. Checklist model 2. Multi-weighted scoring model
Implementation must include attention to several key areas: (5)
1. Completing tasks requires allocation of resources 2. Implementation requires a formal and informal organization that complements and supports strategy and projects ----Authority, responsibility, and performance all depend on organization structure and culture 3. Planning and control systems must be in place to be certain project activities are necessary to ensure strategies are effectively performed 4. Motivating project contributors will be a major factor for achieving project success 5. Areas receiving more attention in recent years are portfolio mgmt. and prioritizing projects
Classification of the Project 3 kinds of projects organization usually have:
1. Compliance (emergency, must do) ---Usually have penalties if not implemented 2. Operational ---Needed to support current operations ---Improve efficiency of delivery systems, reduce product costs, improve performance ---Ex. TQM projects 3. Strategic ---Directly support the organ's long-run mission ---Increasing revenue or market share
Management of a portfolio system requires 2 major inputs from senior mgmt.:
1. Guidance in establishing selection criteria that strongly align with current organ strategies 2. Annually decide how they wish to balance the available organizational resources (people and capital) among different types of projects ----A preliminary decision of balance must be made by top mgmt. (ex. 20% compliance, 50% strategy, 30% operational) before project selection takes place, although the balance may be changed when the projects submitted are reviewed ---After senior mgmt gives these inputs, the priority team or project office can carry out its responsibilities
Impact definitions
Impact definitions represent a further refinement to the screening system Developed to gauge the predicted impact a specific project would have on meeting a particular objective Numeric scheme is created and anchored by defining criteria **Example, bottom of page 45, numbers from figure 2.6
Bread and Butter Projects
Relatively easy to accomplish and produce modest commercial value Typically involve evolutionary improvements to current products and services Ex. Software upgrades; manufacturing cost reduction efforts
Assessment of external and internal environments is called a ______________
SWOT analysis ----Strengths, weaknesses, opportunities, and threats
Objectives answer____________________ and __________________________
"where a firm is headed" "when it is going to get there"
4 basic types of projects:
1. Bread and butter 2. Pearls 3. Oysters 4. White Elephants
Strategic mgmt. requires strong links among 5 things:
1. Mission--gives the general purpose of the organization 2. Goals-- give global targets within the mission 3. Objectives-- give specific targets to goals and give rise to formulation of strategies to reach objectives 4. Strategies-- require actions and tasks to be implemented ----Most cases, actions to be taken represent projects 5. Implementation
4 Activities of the Strategic Management Process
1. Review and define the organizational mission 2. Analyze and formulate strategies 3. Set objectives to achieve strategy 4. Implement strategies through projects
2 types of risks associated with projects:
1. Risks associated with the total portfolio of projects, which should reflect the organ's risk profile 2. Specific project risks that can inhibit the execution of a project, such as schedule, cost, and technical
Project managers role has expanded from an operational role to a more strategic perspective 2 main reasons why project managers need to understand their organization's mission and strategy:
1. So they can make appropriate decisions and adjustments ----How a project manager would respond to delays may vary depending upon strategic concerns 2. So they can be effective project advocates ---Project managers have to be able to demonstrate to senior mgmt. how their project contributes to the firm's mission ---Project managers also need to be able to explain to team members and other stakeholders why certain project objectives and priorities are critical
Number of small and large projects in a portfolio almost always exceeds the available resources Benefits of Project Portfolio Management:
Builds discipline into project selection process Links project selection to strategic metrics Prioritizes project proposals across a common set of criteria, rather than on politics or emotion Allocates resources to projects that align with strategic direction Balances risks across all projects Justifies killing projects that do not support organization strategy Improves communication and supports agreement on project goals
Organizations use ___________________________ to gain a quick insight of a project's inherent risks
risk analysis templates **Info useful in balancing the project portfolio and identifying major risks when executing the project
Conceptual framework for strategy implementation lacks the ____________________________
structure and discipline found in strategy formulation Problem: Implementation of projects is treated as an additional step rather than an integral part of the strategic mgmt. process
Pure financial models fail to include many projects where financial return is impossible to measure and/or other factors are vital to the accept or reject decision. Companies using predominantly financial models to prioritize projects lead to _________________________________________
unbalanced portfolios and projects that aren't strategically oriented
Financial criteria don't always reflect strategic importance Firms may support projects that do not have high profit margins for other strategic reasons:
Capture larger market share Make it difficult for competitors to enter the market Develop an enabler product, which by its introduction will increase sales in more profitable products Develop core technology that will be used in next-generation products Reduce dependency on unreliable suppliers Prevent government intervention and regulation Restore corporate image or enhance brand recognition
Portfolio mgmt. provides info that allows people to make better business decisions Designing a project portfolio system should include: (5)
Classification of a project Selection criteria depending upon classification Sources of proposal Evaluating proposals Managing the portfolio of projects
Internal strengths and weaknesses of the enterprise
Could include core competencies, such as technology, product quality, mgmt. talent, low debt, and dealer networks Managers can alter internal strengths and weaknesses
Culling through so many project proposals to identify those that add the most value requires a structured process Figure 2.5 pg 46, shows a flow chart of a screening process beginning with the creation of an idea for a project --->
Data and info are collected to assess the value of the proposed project to the organ and for future backup If sponsor decides to pursue the project based on the collected data, it is forwarded to the project priority team (or project office) Given selection criteria and current portfolio of projects, priority team rejects or accepts the project If accepted, team sets implementation in motion
Multi-weighted scoring model process:
Each selection criteria are assigned a weight Scores are assigned to each criterion for the project, based on the importance of project being evaluated Weights and scores are multiplied to get a total weighted score for the project
Disadvantages of checklist model approach:
Fails to answer the relative importance or value of a potential project to the organization Fails to allow for comparison with other potential projects Leaves the door open to power plays, politics, and other forms of manipulation ---To overcome these shortcomings, experts recommend multi-weighted scoring model
Figure 2.6, partial example of an evaluation form used by a large company to prioritize and select new projects --->
Form distinguishes between must and want objectives; project doesn't meet must objectives, it is not considered and removed Want objectives are directly linked to objectives found in the strategic plan
Symptoms of organizations struggling with strategy disconnect and unclear priorities:
Frequent conflicts occurring among functional managers causing lack of trust Frequent meetings are called to establish or renegotiate priorities People frequently shifting from one project to another; employees confused about which projects are important People working on multiple projects and feel inefficient Resources are not adequate
Oysters Projects
High risk, high value projects Involve technological breakthroughs with tremendous, commercial potential Ex. Bryonic DNA treatments; new kinds of metal alloys
Mission statement:
Identifies the scope of the organization in terms of its product or service Provides focus for decision making when shared by organizational managers and employees Change infrequently, but when nature of business changes or shifts, revised mission and strategy statements may be required Decrease the chance of false directions by stakeholders Sets the parameters for developing objectives
What must senior mgmt do to fix the implementation gap problem?
It is the responsibility of senior mgmt. to set policies that show a distinct link between organizational strategy and objectives and projects that implement those strategies **But, implementation gap and prioritizing projects are still overlooked by many organizations
Pearls Projects
Low risk development projects with high commercial payoffs Represent revolutionary commercial advances using proven technology Ex. Next-generation integrated circuit chip; subsurface imaging to locate oil and gas
Why is the net present value more realistic?
More realistic because it considers the time value of money, cash flows, and profitability **Look at example on page 38
Checklist model
Most frequently used method in selecting projects Uses a list of questions to review potential projects and to determine their acceptance or rejection ***Typical questions, Exhibit 2.4 page 40 Allow great flexibility in selecting among many different types of projects and are easily used across different divisions and locations
Problem 3: Resource Conflicts and Multitasking
Most project organizations exist in a multiproject environment, which creates problems of project interdependency and the need to share resources Resource sharing also leads to multitasking; people working on several tasks concurrently are far less efficient
Problem 2: Organization Politics Sacred cow?
Politics exist in every organization and can have a significant influence on which projects receive funding and high priority Term "sacred cow" is often used to denote a project that a powerful, high-ranking official is advocating
Financial criteria 2 models used?
Preferred way to evaluate projects Appropriate when there is a high level of confidence associated with estimates of future cash flows 2 models used: ---1. Payback: ---2. Net Present Value
Implementation of projects without a strong priority system linked to strategy creates problems What are these problems? (3)
Problem 1: Implementation Gap Problem 2: Organization Politics Problem 3: Resource Conflicts and Multitasking
What top mgmt needs to do to fix the organization politics problem?
Top management needs to develop a system for identifying and selecting projects that reduces the impact of internal politics and fosters the selection of the best projects for achieving the mission and strategy of the firm
Net Present Value method used to identify financial criteria:
Uses mgmt's minimum desired rate-of-return (discount rate) to compute the present value of all net cash inflows ---Discount rate can differ for different projects; ROI usually set higher on strategic projects than operational projects ---Discount rate also can differ depending on riskier or safer projects ---Criteria for setting ROI should be clear and applied consistently If result is positive, it is eligible for further consideration If result is negative, the project is rejected
Multi-weighted scoring model
Uses several weighted selection criteria to evaluate project proposals Generally include qualitative and/or quantitative criteria **In rare cases where resources are severely limited and project proposals are similar in weighted rank, pick the project placing less demand on resources
External opportunities and threats
Usually represent forces for change such as technology, industry structure, and competition Opportunities and threats are the flip sides of each other; a threat can be perceived as an opportunity or vice versa Examples of external threats: slowing of the economy, maturing life cycle, exchange rates, or government regulation Examples of opportunities: increasing demand, emerging markets, and demographics
Factors such as researching new technologies, public image, ethical position, protection of the environment, core competencies, and strategic fit might be important criteria for selecting projects, not just financial criteria _________________________________seem the best alternative to meet this need
Weighted scoring criteria
Multitasking
adds to delays and cost is more evident in organizations that have too many projects for the resources they command
Organizational objectives set targets for ___________________________ The objectives pinpoint the ____________________________________________
all levels of the organization direction managers believe the organization should move toward
Some cases, the organ with solicit ideas for projects when the knowledge requirements for the project are not available in the organ; will do this by issuing ______________________ to contractors/vendors with adequate experience to implement the project
an RFP (Request for Proposal)
Major responsibility of priority team is to ___________________________________________________________________
balance projects by type, risk, and resource demand **This requires a total organ perspective; a proposed project that ranks high on most criteria may not be selected because the organ portfolio already includes too many similar projects
Regardless of the criteria used for selection, each project should be evaluated _____________________
by the same criteria ---If projects are classified by must do, operation, or strategic, each project in its class should be evaluated by the same criteria
Cascading of objectives concept?
each level below the organizational objectives should support the higher-level objectives in more detail
Selection Criteria There are many criteria for selecting projects but selection criteria are typically identified as ___________________________________
financial and nonfinancial
Most organizations are successful in ______________ strategies for what courses they should pursue, but the problem in many organizations is ____________________ strategies
formulating implementing
Limitations of payback model:
ignores the time value of money, assumes cash inflows for the investment period and not beyond, does not consider profitability
Problem 1: Implementation Gap
lack of understanding and consensus of organization strategy among top and middle-level managers Top mgmt. usually formulates strategy and leaves strategy implementation to functional managers Functional managers usually develop their own more detailed strategies and objectives ---These objectives and strategies being made independently at different levels by functional groups within the organization hierarchy causes many problems
Components found in mission statement:
major products and services, target customers and markets, and geographical domain ---Frequently include organizational philosophy, key technologies, public image, and contribution to society
Payback method used to identify financial criteria: Why would a manager use this model? Provides useful into for firms concerned with...? Formulas?
measures the time it will take to recover the project investment ---Shorter paybacks are more desirable Simplest and most widely used Some managers use this model to eliminate risky projects Provides useful info for firms concerned with liquidity and having sufficient resources to manage financial obligations Payback period (yrs) = Estim. project cost (Investment) / annual savings Rate of return: annual savings / estim. project cost (investment) **Example, page 38
Managers or individual firms have limited opportunities to influence external environmental factors; however there are exceptions with _____________________________
new technologies ---Ex. Apple using the iPod to create a market for selling music
Organs should capitalize on ___________, eliminate or reposition ____________, and balance resources devoted to ____________ and ____________ projects to achieve alignment with overall strategy
pearls white elephants bread & butter and oyster
Strategic management?
process of assessing "what we are" and deciding and implementing "what we intend to be and how we are going to get there" positions the organization to meet the needs and requirements of its customers for the long term
Not required to have the same criteria for the different types of projects but most organizations use similar criteria ----Anyone generating a project proposal should classify their proposal by type, so the appropriate criteria can be used to evaluate their proposal Most important criterion for selection is the _________________________________________________________
project's fit to the organization's strategy
Formulating strategy usually take ________of management's effort, while determining how strategy with be implemented might consume _____
20% 80%
2 major dimensions of strategic mgmt:
1. responding to changes in the external environment 2. allocating scarce resources of the firm to improve its competitive position ----this dimension is the internal responses to new action programs aimed at enhancing the competitive position of the firm ----the nature of the responses depends on the type of business, environment volatility, competition, and the organizational culture
Steps to analyzing and formulating strategies
1st step: realistic evaluation of the past and current position of the enterprise ---Includes an analysis of "who are the customers" and "what are their needs as the customers see them" 2nd step: assessment of the internal and external environment
______________________ play a significant role in the selection and successful implementation of product innovation projects
Project sponsors ---Project sponsors are typically high-ranking managers who endorse and lend political support for the completion of a specific project ---Importance of these sponsors should not be taken lightly; organization's success rate is higher when they have active sponsors
White Elephant Projects
Projects that at one time showed promise but are no longer viable Ex. products for a saturated market or a potent energy source with toxic side effects
Governance Team Responsibilities
Publishing the priority of every project and ensuring the process is open and free of power politics ---This open communication discourages power plays Over time, they evaluate the progress of the projects in the portfolio Imperative to constantly scan the external environment to determine if organizational focus and/or selection criteria need to be changed
Characteristics of Objectives:
S - Specific, be specific in targeting an objective M - Measurable, establish a measurable indicator of progress A - Assignable, make the objective assignable to one person for completion R - Realistic, state what can be realistically be done with available resources T - time related, state when the objective can be achieved, duration
