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Project Management

The Managerial Process


Clifford F. Gray
Erik W . Larson

Chapter One-
Modern Project Management
What
What is
is aa Project?
Project?
• Project Defined
– A complex, non-routine, one-time effort limited by time,
budget, resources, and performance specifications
designed to meet customer needs.
• Major Characteristics of a Project
– Has an established objective.
– Has a defined life span with a beginning and an end.
– Requires across-the-organizational participation.
– Involves doing something never been done before.
– Has specific time, cost, and performance
requirements.
Programs
Programs versus
versus Projects
Projects
• Program Defined
– A series of coordinated, related, multiple projects that
continue over an extended time and are intended to
achieve a goal.
– A higher level group of projects targeted at a common
goal.
– Example:
• Project: completion of a required course in project
management.
• Program: completion of all courses required for a business
major.
Comparison
Comparison of
of Routine
Routine Work
Work with
with Projects
Projects
Routine, Repetitive Work Projects
Taking class notes Writing a term paper
Daily entering sales receipts into Setting up a sales kiosk for a
the accounting ledger professional accounting meeting
Responding to a supply-chain Developing a supply-chain
request information system
Practicing scales on the piano Writing a new piano piece
Routine manufacture of an Apple Designing an iPod that is
iPod approximately 2 X 4 inches,
interfaces with PC, and stores
10,000 songs
Attaching tags on a manufactured Wire-tag projects for GE and
product Wal-Mart

TABLE 1.1
Project
Project Life
Life Cycle
Cycle

FIGURE 1.1
Project
Project Management
Management Life
Life Cycle
Cycle
• Initiate – potential projects are identified and evaluated in
terms of importance to the organization

• Plan – scope, time, cost and risk management planning


takes place

• Execute – project plan is followed and project


performance is measured against the project plan

• Close – final paper work completed and sign off by all


stakeholders
What
What is
is Project
Project Management?
Management?

The application of knowledge, skills, tools, and


techniques to project activities in order to meet project
requirements.

• Involves five process groups:


The
The Challenge
Challenge of
of Project
Project Management
Management
• The Project Manager
– Manages temporary, non-repetitive activities and
frequently acts independently of the formal
organization.
• Organizes resources for the project.
• Is linked directly to the customer interface.
• Provides direction, coordination, and integration to the
project team.
• Is responsible for performance and success of the project.
– Must induce the right people at the right time to
address the right issues and make the right decisions.
Organization
Organization Strategy
Strategy
and
and Project
Project Selection
Selection
What
What is
is Strategy?
Strategy?

Strategy — a comprehensive transformation of


action plan that identifies long-term direction for
an organization and guides resource utilization to
accomplish organizational goals with sustainable
competitive advantage.
Strategy
Strategy

•Competitive advantage —
operating with an attribute or set of
attributes that allows an organization to
outperform its rivals.

•Sustainable competitive
advantage (SCA) — one that is
difficult for competitors to imitate.
Why
Why Project
Project Managers
Managers Need
Need to
to Understand
Understand
the
the Strategic
Strategic Management
Management Process
Process

1. Project managers must respond to changes with


appropriate decisions about future projects and
adjustments to current projects.

2. Project managers who understand their


organization’s strategy can become effective
advocates of projects aligned with the firm’s mission.
The
The Strategic
Strategic Management
Management Process:
Process:
An
An Overview
Overview

• Strategic management is the process of


assessing “what we are” and deciding and
implementing “what we intend to be and how we
are going to get there.”

• Strategy describes how an organization intends


to compete with the resources available in the
existing and perceived future environment
The
The Strategic
Strategic Management
Management Process:
Process:
An
An Overview
Overview
• Strategic Management
– Provides the theme and focus of the future direction
for the firm.
• Responding to changes in the external environment—
environmental scanning
• Allocating scarce resources of the firm to improve its
competitive position—internal responses to new action
programs
– Requires strong links among mission, goals,
objectives, strategy, and implementation.

Copyright © 2006 The McGraw-Hill Companies. All rights reserved.


McGraw-Hill/Irwin 2–14
Strategic
Strategic Management
Management Process
Process (cont’d)
(cont’d)

• Four of Activities of the Strategic Management


Process
1. Review and define the organizational mission.
2. Analyze and formulate strategies to reach
objectives.
3. Set long-range goals and objectives.
4. Implement strategies through projects

Copyright © 2006 The McGraw-Hill Companies. All rights reserved.


McGraw-Hill/Irwin 2–15
Strategic
Strategic
Management
Management
Process
Process

FIGURE 2.1
Copyright © 2006 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 2–16
Review
Review and
and Define
Define Organizational
Organizational Mission
Mission

• Mission identifies “what we want to become”.


• Mission identifies the scope of the organization in
terms of products and services.

• Traditional components found in mission


statements are:
1) Major products and services
2) Target customers and markets
3) Geographical domain
Analyze
Analyze and
and formulate
formulate Strategies
Strategies

 Develop and evaluate strategic alternatives


 Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
 Match organizational strengths to environmental
opportunities
 Correct weaknesses and guard against threats
Long
Long Range
Range Goals
Goals and
and Objectives
Objectives

• Objectives translate the organization mission into


specific and concrete, measurable terms
• Organizational objectives set targets for all levels
of the organization. Objectives pinpoint the
direction managers believe the organization should
move toward.
Long
Long Range
Range Goals
Goals and
and Objectives
Objectives

• Objectives answer in detail where a firm is


headed and when it is going to get there.
Typically, objectives for the organization cover
markets, products, innovation, productivity,
quality, finance, profitability, employees, and
consumers.
• In every case, objectives should be as
operational as possible. That is, objectives
should include a time frame, be measurable, be
an identifiable state, and be realistic
Characteristics
Characteristics of
of Objectives
Objectives

S Specific Be specific in targeting an objective

M Measurable Establish a measurable indicator(s) of progress

A Assignable Make the objective assignable to one person for


completion

R Realistic State what can realistically be done with available


resources

T Time related State when the objective can be achieved.

EXHIBIT 2.1
Copyright © 2006 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 2–21
Implement
Implement Strategies
Strategies through
through Projects
Projects

• Implementation answers the question of how


strategies will be realized, given available
resources.
Portfolio
Portfolio of
of Projects
Projects by
by Type
Type

FIGURE 2.2
Copyright © 2006 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 2–23
AA Portfolio
Portfolio Management
Management System
System

• Selection Criteria
– Financial: payback, net present value (NPV), internal
rate of return (IRR)
– Non-financial: projects of strategic importance to the
firm.
– Two Multi-Criteria Selection Models

Copyright © 2006 The McGraw-Hill Companies. All rights reserved.


McGraw-Hill/Irwin 2–24
Financial
Financial Models
Models

• The Payback Model


– Measures the time it will take to recover the project
investment.
– Shorter paybacks are more desirable.
– Emphasizes cash flows, a key factor in business.
– Limitations of payback:
• Ignores the time value of money.
• Assumes cash inflows for the investment period (and not
beyond).
• Does not consider profitability.

Copyright © 2006 The McGraw-Hill Companies. All rights reserved.


McGraw-Hill/Irwin 2–25
Financial
Financial Models
Models (cont’d)
(cont’d)
• The Net Present Value (NPV) model
– Uses management’s minimum desired rate-of-return
(discount rate) to compute the present value of all net
cash inflows.
• Positive NPV: the project meets the minimum desired rate of
return and is eligible for further consideration.
• Negative NPV: project is rejected.

Copyright © 2006 The McGraw-Hill Companies. All rights reserved.


McGraw-Hill/Irwin 2–26
Net
NetPresent
PresentValue
Value(NPV)
(NPV)and
andInternal
InternalRate
Rateof
ofReturn
Return(IRR):
(IRR):
Example
ExampleComparing
ComparingTwoTwoProjects
Projects

EXHIBIT 2.3
Copyright © 2006 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 2–27
Non-Financial
Non-Financial Criteria
Criteria
Pure Payback/NPV analysis will not help with the
following:
• To capture larger market share
• To make it difficult for competitors to enter the market
• To develop an “enabler” product
• To develop core technology that will be used in next-
generation products
• To reduce dependency on unreliable suppliers
• To prevent government intervention and regulation
• To reduce the company’s carbon footprint or meet other
sustainability/ecological criteria etc.
Continue……..
Continue……..
• Two Multi-Criteria Selection Models:
Two models:
1. The checklist
2. Multi-weighted scoring models
•Checklist Models This approach basically uses
a list of questions to review potential projects
and to determine their acceptance or rejection.
• A justification of checklist models is that they allow
great flexibility in selecting among many different types
of projects and are easily used across different
divisions and locations.
Continue..
Continue..
• Major shortcomings of this approach are that it
fails to answer the relative importance or value
of a potential project to the organization and fails
to allow for comparison with other potential
projects.

• Multi-Weighted Scoring Models


Use several weighted selection criteria to
evaluate project proposals.
Project
Project Screening
Screening Matrix
Matrix

FIGURE 2.3
Copyright © 2006 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 2–31
Class
Class Task
Task 11
The Custom Bike Company has set up a weighted scoring matrix for evaluation
of potential projects. Below are three projects under consideration.
a. Using the scoring matrix below, which project would you rate highest? Lowest?

Criterion Strong Support Urgenc Urgency Competi Fill Weighte


s 10% of d
sponsor y tion market
Project busines sales
total
s gap
from
Strateg
new
y
product

2 5 4 s 3 1 3

Project 1 9 5 2 0 2 5
Project 2 3 7 2 0 5 1
Project 3 6 8 2 3 6 8
Project 4 1 0 5 10 6 9
Project 5 3 10 10 1 8 0
Class
Class Task
Task 22
• You manage a hotel resort located on the South Beach on the Island of
Kauai in Hawaii. You are shifting the focus of your resort from a traditional
fun-in the-sun destination to eco-tourism. (Eco-tourism focuses on
environmental awareness and education.) How would you classify the
following projects in terms of compliance, strategic, and operational?
a. Convert the pool heating system from electrical to solar power.
b. Build a 4-mile nature hiking trail.
c. Renovate the horse barn.
d. Replace the golf shop that accidentally burned down after being struck by
lightning.
e. Launch a new promotional campaign with Hawaii Airlines.
f. Convert 12 adjacent acres into a wildlife preserve.
g. Update all the bathrooms in condos that are 10 years old or older.
h. Change hotel brochures to reflect eco-tourism image.
i.Test and revise disaster response plan.
j. Introduce wireless Internet service in café and lounge areas.