Project Selection

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Strategic Planning and Project SelectionStrategic planning involves determining long-term

objectives, predicting future trends, and projecting the need for new products and services

Organizations often perform a SWOT analysisAnalyzing Strengths, Weaknesses, Opportunities, and

ThreatsAs part of strategic planning, organizations:

Identify potential projectsUse realistic methods to select which projects to work onFormalize project initiation by issuing a project charter

Figure 4-2: Information Technology Planning Process

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Methods for Selecting Projects(Please note: The Methods are not only meant for this ITPM Class)

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Methods for Selecting Projects There are usually more projects than available

time and resources to implement them Methods for selecting projects include:

Focusing on broad organizational needs Categorizing information technology projects Performing net present value or other financial

analyses Using a weighted scoring model Implementing a balanced scorecard

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Focusing on BroadOrganizational Needs

It is often difficult to provide strong justification for many IT projects, but everyone agrees they have a high value

“It is better to measure gold roughly than to count pennies precisely”

Three important criteria for projects:There is a need for the projectThere are funds availableThere’s a strong will to make the project succeed

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Categorizing IT ProjectsOne categorization is whether the project

addresses:A problemAn opportunityA directive

Another categorization is how long it will take to do and when it is needed

Another is the overall priority of the project

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Financial Analysis of ProjectsFinancial considerations are often an important

consideration in selecting projectsThree primary methods for determining the

projected financial value of projectsNet present value (NPV) analysisReturn on investment (ROI)Payback analysis

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Net Present Value AnalysisNet present value (NPV) analysis is a method of

calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time

Projects with a positive NPV should be considered if financial value is a key criterion

The higher the NPV, the better

Figure 4-3: Net Present Value Example

Note that totals are equal, butNPVs arenot because of the time value of money

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Figure 4-4: JWD Consulting NPV Example

Multiplyby thediscountfactor eachyear, then take cum.benefits –costs toget NPV

Note: See the template called business_case_financials.xlsTable 3-16 on pp. 118-119 lists the templates available on the companion Web site (www.course.com/mis/schwalbe5e)11

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NPV CalculationsDetermine estimated costs and benefits for the life

of the project and the products it producesDetermine the discount rate (check with your

organization on what to use)Calculate the NPV (see text for details)Note: Some organizations consider the investment

year as year 0, while others start in year 1; some people enter costs as negative numbers, while others do notCheck with your organization for their preferences

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Return on InvestmentReturn on investment (ROI) is calculated by

subtracting the project costs from the benefits and then dividing by the costs ROI = (total discounted benefits - total discounted costs) /

discounted costsThe higher the ROI, the betterMany organizations have a required rate of return or

minimum acceptable rate of return on investment for projects

Internal rate of return (IRR) can by calculated by finding the discount rate that makes the NPV equal to zero

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Payback Analysis

Another important financial consideration is payback analysis

The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the total dollars invested in a project

Payback occurs when the net cumulative discounted benefits equals the costs

Many organizations want IT projects to have a fairly short payback period

Figure 4-5: Charting the Payback Period

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5 Minutes Class ActivityWeighted Decision Matrix Suggest four or five criteria you would use to choose a roommate. Then choose the weight for each criterion, making sure the weights add up

to one hundred. Pick four potential roommates from this class. Make a simple table, as shown here: Have you make your decision?

Criteria Weight Name1 Name2 Name3 Name4

C1 30% 100 100

C2 20% 90 100

C3 30% 40 20

C4 10% 70 10

C5 10% 50 10

Weighted Score

72 58

This activity demonstrates one way to develop a weighted decision matrix for Project selection by finding a significant other.

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Weighted Scoring Model A weighted scoring model is a tool that provides

a systematic process for selecting projects based on many criteria

1. Identify criteria important to the project selection process

2. Assign weights (percentages) to each criterion so they add up to 100%

3. Assign scores to each criterion for each project4. Multiply the scores by the weights and get the total

weighted scores The higher the weighted score, the better

Figure 4-6: Sample Weighted Scoring Model for Project Selection

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Implementing a Balanced ScorecardDrs. Robert Kaplan and David Norton developed

this approach to help select and manage projects that align with business strategy

A balanced scorecard:Is a methodology that converts an organization’s value

drivers, such as customer service, innovation, operational efficiency, and financial performance, to a series of defined metrics

See www.balancedscorecard.org for more information

Figure 4-7: Balanced Scorecard Example

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Defense Finance and Accounting Service, “DFAS Strategic Plan,” Nov 2001(http://balancedscorecard.org/files/DFAS-strategic-plan.pdf ), p. 13.

Destination DiagramA destination diagram often used to visualize

elements that should appear at the end of a project

Often utilized as vision building exercise (for project or non project-life)

This is a richer aspect of presenting the elements other than Check List

My Life Dream20 years from today (16 Feb 2011)

Darul Iman – Modernize ‘sekolah pondok’ for adults Location: Bandar Tasik Puteri, Rawang, Selangor

Cost: RM60,000.00 / yearIncome: RM120,000.00 / year

Performing 3rd HajjLocation: MakkahCost: RM100,000.00

Umrah & TourLocation: Jordan - Turki – Egypt - Madinah - MakkahCost: RM100,000.00 Audi 4WD

Cost: RM450,000.00 Bungalow with swimming pool

Location: Kuala Lumpur outskirt Cost: RM 1.5 million

Raised my 1 year old sonCost: RM 3 million

Renowed Academician & ResearcherLocation: Universiti Selangor (UNISEL)

Income: RM 174,000.00 / year

Restoren Bawang Location: Bandar Tasik Puteri,

Rawang, SelangorCost: RM80,000.00 / year

Income: RM240,000.00 / year

Mr X

Picture

My Life Dreams

$ 70,000+50,000

$ 500,000+600,000

$ 4,000,000+600,000

$ 30,000,000+600,000

$ 10,000

$ 10,000

$ 50,000+ grant

PHD

Post- DR with grant

$ 40,000

$ 80,000

From the second 5 years until years 20th $ 1,500,000

From the second 5 years until year 20th $ 450,000

$100,000

$500,000

$30,000

$ 20,000,000

$ 200,000

+

After Selecting Project

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Project ChartersAfter deciding what project to work on, it is

important to let the rest of the organization knowA project charter is a document that formally

recognizes the existence of a project and provides direction on the project’s objectives and management

Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project; a signed charter is a key output of project integration management

Table 5-2: Sample Project Charter

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Preliminary Scope StatementsA scope statement is a document used to

develop and confirm a common understanding of the project scope

It’s important for preventing scope creepThe tendency for project scope to keep getting bigger

It’s good practice to develop a preliminary or initial scope statement during project initiation and a more detailed scope statement as the project progresses

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Stakeholder AnalysisA stakeholder analysis documents important

(often sensitive) information about stakeholders such as:Stakeholders’ names and organizationsRoles on the projectUnique facts about stakeholdersLevel of influence and interest in the projectSuggestions for managing relationships

Table 4-2: Sample Stakeholder Analysis

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Chapter Summary

Project Selection MethodsDeveloping a project charterDeveloping a preliminary project scope statementDeveloping Stakeholder Analysis