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9/27/2020

Week 3: Lecture Book

Week 3: Lecture Book Site: Course: Book:

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ITECH 7401 SEM9 2020: Leadership in IT Project

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Management ATMC - Melbourne Week 3: Lecture Book

Table of contents 1. Project Selection 1.1. Strategic Planning 1.2. Identifying IT Projects 1.3. Project Selection Methods 1.4. Measures of Project Success 1.5. Project Business Case 1.6. Project Portfolio 1.7. Summary 1.8. References

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Week 3: Lecture Book

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Project Selection   Commonwealth of Australia Copyright Act 1968 Notice for paragraph 135ZXA (a) of the Copyright Act 1968 Warning This Material has been reproduced and communicated to you by or on be Part VB of the Copyright Act 1968 (the act). The Material in this communication may be subject to copyright under the communication of this material by you may be the subject of copyright pro Do not remove this notice.

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Strategic Planning  Successful leaders look at the big picture or strategic plan of the organisation to determine what types o value. Strategic planning involves determining long-term objectives by analysing the strengths and wea studying opportunities and threats in the business environment, predicting future trends, and projecting services (Schwalbe, 2014). Project managers who understand their organisation's strategy can become aligned with the firm's mission. 

Strategic Planning Process Strategic management is the process by which managers make a choice of a set of strategies for the o achieve better performance" (Larson, Honig, Gray, Dantin, & Baccarini, 2014, p. 28). The ingredients of strategic management are directly related, and all are directed toward the future triu management needs firm links among mission, goals, objectives, strategy, and implementation (Larson, 2014). Figure 3-1 shows a schematic of the strategic management process and major actions required. There are a large number of definitions and theories that describe leadership. Can you identify the key t Figure 3-1. Strategic Management Process (Larson, Honig, Gray, Dantin, & Baccarini, 2014, p. 29)

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For instance, the mission of Mac Donald's, is "to be our customers' favourite place and way to eat. Our w around a global strategy called the Plan to Win, which centre on an exceptional customer experience – Promotion. We are committed to continuously improving our operations and enhancing our customer The mission statement for Coca-Cola reads, "To refresh the world… To inspire moments of optimism a make a difference." The mission statement for IBM reads, "Dedication to every clients success. Innovation that matters – fo and responsibility in all relationships". These statements provide clues to what these organisations see as their reason for being in business. Fi the typical components of mission statements. Figure 3-2. Components of a Mission Statement (Robbins & Coulter, 2013)

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SWOT Analysis The starting point in formulating strategy is usually SWOT analysis. SWOT stands for strengths, weakness SWOT analysis is a strategic planning tool that business managers use to help formulate plans and deter A SWOT analysis involves creating a list of a company's strengths, weaknesses, opportunities and threat decisions about strategy and future project. A strength is a distinctive competence, resource or skill that provides the organisation with a competitiv for example access to high quality materials, or a strong corporate image. A weakness is a negative internal condition that can lead to lowering of organisational performance, for

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 As shown in Figure 3-4, SWOT analysis is a careful evaluation of an organisation's internal strengths and environmental opportunities and threats (Davidson et al, 2006).  Figure 3-4. Using SWOT analysis to formulate strategy (Davidson, et al., 2006, p. 95)

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Identifying IT Projects 

Project Ideas The following points are useful for the stimulation of project ideas (Mishra & Soota, 2005): analyse performance of existing industries; examine inputs and outputs of various industries (raw material, labour, and other resources); review imports and export statistics; study plan outlays and government guidelines; data from various sources like financial institution and development agencies; study technological developments; draw clues from consumption aboard; attend trade seminars (national and international); analyse financial, economic and social trends; identify unfulfilled psychological needs; and explore possibility of reviving sick units (p. 32).  Another way to identify project ideas is to identify potential problems. The following categories can be potential problems on projects (Mishra & Soota, 2005). new technology; prototype equipment; site conditions; limited resources; delays in obtaining permits; process control systems; difficult access; labour; and economic conditions. 

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Overview of the Strategic Planning Process

According to Robbins and Coulter (2013) the typical arrangement of activities in the strategic managem Step 1: Identifying the organisation's current mission, objectives, and strategies Step 2: Analysing the environment Step 3: Identifying opportunities and threats Step 4: Analysing the organisation's resources and capabilities Step 5: Identifying strengths and weaknesses Step 6: Formulating strategies Step 7: Implementing strategies Step 8: Evaluating results 

Links between Strategy and Projects Creating a clear linkage between strategy and projects can be a challenge, particularly in large organisa worth the effort. Some of these benefits include: efficient utilisation of scarce resources such as funds, equipment and competencies; identification of the most important projects; flexibility to adapt to changing business needs;

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Project Selection Methods 

Solicitation of Project Proposals Many organisations follow a planning process for selecting projects which is aligned with business strate project selection models, numeric and non-numeric. Both are widely used. Many organisations use bo models that are the combinations of the two. There is usually not enough time or resources to implement all projects. Methods for selecting project focusing on broad organisational needs; categorising projects; financial analysis; using a weighted scoring model; and implementing a balanced scorecard. In practice, organisations usually use a combination of these approaches to select projects. Each appro disadvantages, and it is up to management to decide the best approach for selecting projects based on 

Focusing on Broad Organisational Needs Top managers must focus on meeting their organisation's many needs when deciding what projects to them, and to what level. Projects that address broad organisational needs are much more likely to be su important to the organisation. One method for selecting projects based on broad organisational needs is to determine whether they fi need, funding, and will. Do people in the organisation agree that the project needs to be done? Does th capacity to provide adequate funds to perform the project? Is there a strong will to make the project su As the project progresses, the organisation must re-evaluate the need, funding and will for the project t continued, redefined, or terminated. 

Categorising Projects Another method for selecting project is based on various categorisations. One type of categorisation as response to a problem, an opportunity or a directive. Problems: are undesirable situations that prevent and organisation for achieving its goals. These prob Opportunities: are chances to improve the organisation. Directives: are new requirements imposed by management, government, or some external influenc Another categorisation is based on the time and date of expected completion; another categorisation is

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assumes cash inflows for investment period only; and does not consider profitability. Charting: Creating a chart provides a visual illustration of when the point of payback occurs. The point at which th (benefits) cross the cumulative discounted outflows (costs) is the point of payback. An early payback pe year, is normally considered very desirable. See in the example chart provided (Figure 3-5), the point o Figure 3-5. Charting the Payback Period (Schwalbe, 2014, p. 153)

  Formulas: The formula to calculate payback period of a project depends on whether the cash flow per period from In case they are even, the formula to calculate payback period is:

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and t payback period: In the uneven formula: A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash inflow during the period after A. 

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Example 3-1, Project 1 is a superior choice based on a shorter payback period (2.69 years versus 3.2 ye Download example from moodle – 03 example 3.1 payback.xls

Click here to read more about – Payback Period:https://accountingexplained.com/managerial  NPV Analysis

The most popular and reliable financial decision-making approach in project selection is Net Present V the expected net monetary gain or loss from a project by discounting all the expected future cash inflow the present point in time. NPV uses management's minimum desired rate-of-return (discount rate) to c cash inflows:

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exploiting an organisation's opportunities and strengths; neutralising its threats; and avoiding or correcting it weaknesses. SWOT analysis is one of the most important steps in formulating strategy. Using the organisation's miss assess internal strengths and weaknesses, and external opportunities and threats. The goal is then to dev opportunities and strengths, neutralise threats and avoid weaknesses.  Click here to watch a video (8m 32s) – Mc Donalds SWOT:

McDonalds SWOT

In this video the presenter illustrates how to do a SWOT analysis, using the McDonald's restaurant chain 

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 Example 3.2: Assume that you are considering whether or not to invest in a project that will cost $80,000 in initial inv (Years 1 to 4), a total of $145,000. Your company requires a rate of return of 10%. You anticipate a usefu and have projected future inflows (benefits) as follows (Years 0 to 4): $0, $20,000, $50,000, $50,000 a Construct a table to keep a running score on discounted cash flow both inflows (benefits) and outflows Calculate the NPV to determine if the project is worth investment.

Download example from moodle – 03 example 3.2 NPV.xls Click here to learn more about how to calculate NPV – Net Present Value (NPV):https://www. present-value.html  ROI Analysis

Another important financial consideration is return on investment (ROI). ROI is calculated by subtracting inflows (benefits) and then dividing by the outflows (costs). The higher the ROI, the better, many organis of return on investment projects. Many organisations have a required rate of return for projects. The required rate of return is the minim investment. For example an organisation might have a required rate of return on an investment, for exa determine a project's internal rate of return (IRR) by finding what discount rate results in an NPV of zer interest rate at which the net present value of all the cash flows (both positive and negative) from a proj Internal rate of return is used to evaluate the attractiveness of a project or investment. Formula:

 See Figure 3.6 for an ROI example. Would you invest in? Why? Why not?

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 Example 3.3: Assume that you are considering whether or not to invest in a project that will cost $140,000 in initial in 1 to 3), a total of $260,000. Your company requires a rate of return of 8%. You have projected future ca (Year 0): $0, (Years 1 to 3) $200,000, a total of $600,000. Construct a table to keep a running score on discounted inflows (benefits) and outflows (costs). Calculate discounted inflows (benefits) and outflows (costs), and the ROI to determine if the project is w

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 Download example from moodle – 03 example 3.4 weighted score.xls 

Balanced Scorecard A balanced scorecard is a methodology that converts an organisations value drivers, such as a custome efficiency, and financial performance, to a series of defined metrics. The balanced scorecard was first introduced in the early 1990's through the work of Robert Kaplan and Business School. By combining financial measures and non-financial measures in a single report, the ba managers with richer more relevant information. The balanced scorecard method is a strategic approa system that enables organisation to translate a company's vision and strategy into implementation, wor financial perspective; customer perspective; business process perspective; and learning and growth perspective.  Figure 3-8. Balanced Scorecard Kaplan Norton (Kaplan & Norton, 2014)

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maximisation of return on ROI; maintaining minimum market share, increase or consolidate the existing market share; enabling the company or economy to enter new markets or areas of operation; maximum utilisation of the workforce available; maximum or optimum utilisation of technical resources; help the organisation or economy improve its position; risk and uncertainty are under the acceptable limits; scope of the operations of the project is within the capabilities of a company or country; internal rate of return (IRR); and net present value (NPV). 

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Measures of Project Success 

Project Success Factors Why do some projects succeed and others fail? Can organisations provide a better environment to help There are no easy answers to any of these questions, but many people are contributing to the knowledg theory and practice of project management. Hartley (2009) suggests the following factors contribute to the success of projects: strategic alignment to business operations; endorsed, communicated and consistently applied methodology; transparent approvals, decision making and accountability; real-time performance measurement and reporting systems; user-friendly project management software; evidence of both activity and achievement; skills inventory of all qualified project management personnel; acceptance of the iterative nature of projects (particularly estimates); continued development and refinement of organisational maturity; demonstrated visibility, authority and accountability; appropriate and timely review gates; and over-arching project management steering group (p. 18). Project managers play an important role in making projects and therefore organisations successful. Sch biggest success factor in a project is the ongoing commitment and support of executive management. Successful projects are carefully planned and managed events, and much like a recipe, each needs the start to stand any chance of a successful result. 

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Click here to watch a video (8m 07s) – Return on Investment (ROI):

Return on Investment (ROI)

In this video the presenter discusses what ROI is and how it is calculated and used for business. 

Weighted Scoring Model A weighted scoring model is a tool that provides a systematic process for selecting projects based on include factors such as meeting broad organisational needs, addressing problems, opportunities, or dire take to complete the project, the overall priority of the project, and projected financial performance of The first step in creating a weighted scoring model is to identify criteria important to the project selecti develop and reach agreement on these criteria. Some examples include: supports key business objectives; has strong internal sponsor; provides positive NPV; has a high ROI; and payback within one year.

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Project Business Case 

What is a Business Case  Successful organisations initiate projects to meet business needs, and a common business need is to sp is a document that provides justification for investment. It is a good idea to have one of the company's financial managers review the information for accuracy – considered part of the project management plan. A good business case is very important to a project m a). Obtain support of senior management including; CEO, Finance Manager etc., b). Assist in financial m budget or project plan), and c). Shows how an IT solution can create business value. Attributes of a Good Business Case: Details all possible impacts, costs, benefits. Clearly compares alternatives. Objectively includes all pertinent information. Systematic in terms of summarising findings. Contents of a Business Case: Introduction/Background. Business Objective. Current Situation and Problem/Opportunity Statement. Critical Assumptions and Constraints. Analysis of Options and Recommendation. Preliminary Project Requirements. Budget Estimate and Financial Analysis. Schedule Estimate. Potential Risks. Exhibits.  Figure 3-8. Business Case Example (Schwalbe, 2005)

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Click here to read more about – Prepare a business case:https://www.skillshighway.govt.nz/pr also – How to write a business case document:http://whatis.techtarget.com/definition/How-to-write 

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Project Portfolio's  Many organisations support an emerging business strategy of project portfolio management. Organisa a portfolio of investments that contribute to organisations success. Project Portfolio Management is ab projects. Each portfolio of projects needs to be assessed by its business value and adherence to strategy to achieve a defined business objective or benefit. Managing the Portfolio requires a). senior managem responsibilities. 

Approaches for Creating Project Portfolio's One approach is adopting a large portfolio for the entire organisation. Sections of the portfolio are brok are broken down into three categories: Venture: Projects that help transform the business Growth: Projects that help increase revenues Core: Projects that help run the business  Benefits of Project Portfolio Management

Builds discipline into project selection process. Links project selection to strategic metrics. Prioritises project proposals across a common set of criteria, rather than on politics or emotion. Allocates resources to projects that align with strategic direction. Balances risk across all projects. Justifies terminating projects that do not support organisation strategy. Improves communication and supports agreement on project goals.  Problems with Project Portfolio Management

Implementation Gap: lack of understanding and consensus on strategy among top management and who independently implement the strategy. Organisation Politics: selection is based on the persuasiveness and power of people advocating the p Resource Conflicts and Multitas...