MODULE 2: PROJECT MANAGEMENT MATURITY AND PROJECT SELECTION

PROJECT MANAGEMENT MATURITY

Project management maturity (or PMM) reflects a company’s ability to manage projects efficiently.

In particular, the high level of PMM means that:

 Projects are delivered on time and budget;

 Risks and changes don’t derail projects;
 Projects are aligned with a company’s business objectives;
 The delivered output meets stakeholder expectations;
 A company is competitive on the market.

The main purpose of determining project management maturity is to assess the actual state of the
project management process in an organization as well as detect areas and direction for its
improvement.

To determine the PMM level, corresponding models are used. They usually describe levels indicating the
current state of an organization in terms of project management efficiency and propose
recommendations on how to proceed to more sophisticated levels.

PROJECT MANAGEMENT MATURITY MODELS

- Project management maturity models measure how well a company handles projects.
These models provide criteria and scoring systems to assess capabilities. Models also
provide a framework for implementing process improvements in the future.

1. Capability Maturity Model (CMM)

- The capability maturity model is a framework that describes an improvement path from
an ad hoc, immature process to a mature, disciplined process focused on continuous
improvement.
- It helps businesses to:
 Enhance streamlined processes
 Develop practices that decrease risks
 Meet their functionality, uphold product quality, and keep projects within
budgets.
 Make successive continuous process improvements.
 Initial level
a. This level describes a poorly aligned function with non-documented strategies, manual
management processes, lack of integrated systems and heavy reliance on
spreadsheets/manual documents
b. Some other notable features of processes at this level are:
  instability
 a lack of insight into project timelines and the quality of outcomes
 a lack of well-defined processes
 ad hoc decision making
 Repeatable level
- which describes a loosely aligned function supported by informal policies applied to
processes performed by personnel with mixed skill levels
- key features of processes at the repeatable level are:
 well-defined goals, resources and challenges
 clearly outlined plan for the development process
 a consistent performance level
 consideration of customer feedback
 plans for how to manage development activities run by third parties
 clear rules and standards for development
 Defined level
- which describes a strategic management structure in place with well-defined processes
supported by an organized and highly trained team
- Some other important features of the defined level are:
 a focus on developing and maintaining standard processes
 a plan for how different development teams can work together efficiently
 a list of practices that can improve process development
 a strategy for developing knowledge and skills to improve efficiency
 Managed level
c. which describes a function aligned with the organizational strategic plan and personnel
d. Other notable features at this level are:
 Clear goals for both processes and final products
 plans and processes exist to evaluate quality more accurately
 metrics are in place to help the organization define its goals
 Optimizing level
- which describes a management process performed at an optimal level with best
practices in full use
 finding the cause of problems to mitigate them
 identifying new technologies that can shorten development time and improve
quality

2. Project Management Maturity Model (PMMM)

- A project management maturity model (commonly shortened to PMMM) is a matrix that
illustrates how a company's project management process evolves over time. Just as a
company changes as it expands, it's necessary for your project management style to
adjust as well. The idea is that an organization doesn't grow at random—when a
company grows, it grows with purpose.

5 maturity levels of the PMMM

 These five levels of project management maturity all represent the stage of maturity that a
company can be in. It's possible for an organization to be in different maturity levels in varying
knowledge areas. This is similar to a grading rubric, or an employee performance review

 Level 1: Initial process

- During this level, an organization has very few project management processes in place.
More likely than not, tasks are done randomly and it's challenging to predict future
success since everything is done ad hoc.

 Level 2: Structured process and standards

- In this level, an organization implements basic project management, but only for
individual projects. This means that there may be varying project management
methodologies in use across the organization.

 Level 3: Organizational standards and institutionalized processes

- At this level of maturity, an organization should have a well-defined project management
system that is standard throughout the organization, sometimes referred to as a project
management office (PMO). Management is regularly involved in implementing new
processes, including implementing change management where necessary to update or
modify organization-wide project management processes. You measure metrics, but
only to establish a baseline, not for strategic planning.

 Level 4: Managed processes

- At this stage, your organization exhibits all of the characteristics from level three and
pushes them a little farther. An organization in the managed processes level has clear
project management processes and documentation in place. Project leads regularly
incorporate standard project management processes throughout corporate systems.
During this stage, management regularly begins monitoring metrics and looking at past
performance to make decisions for future projects

 Level 5: Optimizing process

- Once an organization reaches this level of project management maturity, they can begin
fully optimizing their processes to best tailor to their needs. One of the key identifiers of
this stage is continuous improvement

10 knowledge areas of project management

 Project integration management: The coordination of different moving pieces of projects.

This includes individual tasks, resources, stakeholders, deliverables, and portfolio
management. This knowledge area identifies how all of these moving pieces are
communicated to other team members.
 Scope management: The way the team ensures a project fits the project scope, whether
that's time, budget, or resources.
  Time management: Similar to project scope management, this is how a project management
team uses time during a project.
 Cost management: A subset of scope management, this is how a team manages the costs of
a project and if they're using budget efficiently.
 Quality management: How teams use their processes to produce quality products.
 Resource management: How teams organize, process, manage, and lead team members
during a project.
 Communication management: The way teams communicate projects both internally to other
employees and externally to future and current customers. This can include real-time and
asynchronous communication, all of which should be documented in a communication plan.
 Risk management: How a team proactively mitigates project risk. This includes any
contingency plans a team has in response to potential risk.
 Procurement management: How an organization obtains goods or services from external
vendors. This could either be at the project level or at the company level.
 Stakeholder management: The way your team manages expectations from different
stakeholders, plus how you communicate status updates with various stakeholders.

PROJECT SELECTION

- Project selection is the process of evaluating projects to ensure that they align with your
strategic objectives and deliver maximum performance.
- Typically, when project managers select a project, they may consider the following factors:
 Costs
 Resources
 Benefits or ROI
 Time to complete the project
 Risks associated with the project

Why is project selection important?

- Project selection is important because companies want to make sure projects they invest in
are safe and will yield benefits and good returns. The process of project selection can analyze
new opportunities and help justify the decisions for making needed monetary investments.
Companies may have several project opportunities to invest in, but because they can't invest
in all projects, they are often selective.

Project Selection Models

1. Non-numeric Models - These models are constructed on the basis of subjective evaluation of
the ideas and opinions of the project manager and the project team
a. The Sacred Cow
b. The Operating Necessity
c. The Competitive Necessity
d. The Product Line Extension
 e. Comparative Benefit Model
2. Numeric Models - These models use numbers as input for selecting a project.
 Profit or profitability - These models consider monetary and non-monetary factors. The
biggest advantage of the profitability model is that it is easy to understand and use.
Following are the types of profitability models:
a. Payback period
b. Average Rate of Return (ARR)
c. Net present value Method
d. Internal Rate of Return Method
e. Profitability index
 Scoring- These models involve multiple decision criteria for selecting a project. In scoring
models, the decisions are taken after discussions between the project team and the top-
level management. Following are the types of scoring models:
a. Unweighted 0-1 factor
b. Unweighted factor scoring

Non-numeric Models

1. Sacred Cow - These are models in which higher officials such as the CEO of a company supports
the project.
2. The Operating Necessity - the completion of this project is critical to the continued operation of
the business.
3. Competitive Necessity - This project is essential to the competitive edge of the business.
4. The Product Line Extension – In this case, a project to develop and distribute new products
would be judged on the degree to which it fits the firm’s existing product line, fills a gap,
strengthens a weak link, or extends the line in a new, desirable direction.
5. Comparative Benefit: This model compares multiple potential projects and highlights the best
among them.

Numeric Models – (Profit/Profitability)

1. Payback period
- The payback period represents the time the project takes to return the money spent on the
project.
- The payback period for a project is the initial fixed investment in the project divided by the
estimated annual net cash inflows from the project. The ratio of these quantities is the
number of years required for the project to repay its initial fixed investment.
- This method assumes that the cash inflows will persist at least long enough to pay back the
investment, and it ignores any cash inflows beyond the payback period. The method also
serves as an (inadequate) proxy for risk. The faster the investment is recovered, the less the
risk to which the firm is exposed.
- Decision Rule: the shorter the time, the better
PB ≤ Maximum Allowed PB Period = Accept
PB > Maximum Allowed PB Period = Reject
 2. Average Rate of Return (ARR)
- Often mistaken as the reciprocal of the payback period, the average rate of return is the ratio
of the average annual profit (either before or after taxes) to the initial or average investment
in the project. Because average annual profits are usually not equivalent to net cash inflows,
the average rate of return does not usually equal the reciprocal of the payback period.
- Also known as book value rate of return
- Measures the profitability of proposed project by relating the required investment to the
future net income
- Decision Rule: The higher, the better, preferred method= average investment
ARR ≥ Required rate of return = Accept
ARR < Required rate of return = Reject

3. Net present value Method

- The net present values of all cash inflows and an outflow occurring during the entire life of
the project is determined separately for each year by discounting these flows by a pre-
determined rate.
- NPV ═ Total present value of cash Inflows – Present value of initial investment
- Decision Rule:
If NPV ≥ 0, Accept
If NPV < 0, Reject

4. Internal Rate of Return Method

- Also known as the Break-even rate of return
- It is the rate which equates the present value of the future cash inflows with the cost of
investment which produces them.
- It is also the maximum rate of interest that would be paid each year for the capital
employees over the life of an investment without loss on the project
Present Value of Cash Inflow = Cost of Investment
Net Present Value = Zero
Profitability Index = 1
- Decision Rule:
If IRR ≥ Required Rate of Return, Accept
If IRR < Required Rate of Return, Reject

5. Profitability index
- Also known as the benefit–cost ratio, the profitability index is the net present value of all
future expected cash flows divided by the initial cash investment. (Some firms do not
discount the cash flows in making this calculation.) If this ratio is greater than 1.0, the project
may be accepted.
- PV index = PV Cash Inflows / Cost of Investment
- It is a useful tool for ranking projects because it allows you to quantify the amount of value
created per unit of investment.

Numeric Models – (Scoring)

1. Unweighted 0–1 Factor Model
- the management lists the factors that are considered in rating a project. Management
consists of a team of raters who help selection of the project. The people involved in the
team must be familiar with the organizational goals. In this model, the list of factors is
provided to the team of raters and the project is selected on the basis of the score given to
it.
- The benefit of using this model is that it gives equal importance to the opinions of all raters
on the basis of which the final result is obtained.

2. Unweighted factor scoring

- In this model, the raters can select any of the values on a scale of 1 to 5 in which 5 is very
good, 4 is good, 3 is fair, 2 is poor and 1 is very poor.