Project Selection & Scoping Overview

Deb Dixon

2

Objectives

• Explain why effective project selection is so critical

• Project Selection Approach

• Characteristics of a Good Project

3

Why is Project Selection So Critical

• Management Can Only Apply Resources (People) to Activities That Support the Business Objectives

• Management Can Only Spend Time on Activities That Support the Business Objectives

• Black Belts Need to Execute Projects Quickly

4

Project Selection Continuum

Discrete Projects Are Chosen by BBs

Management Brainstorms Projects

Projects Are Selected From a Brainstormed List And Mapped Back to The Strategic Goals of The Firm

Strategic Goals Are Determined And Projects Flow Down From These Goals Based on Available Data

Strategic Goals Are Determined And a Statistical Relationship Is Determined to Describe How the Strategic Goal Is Improved by Completing the Project (CTQ flowdowns)

Worst

Best

5

•Cash Flow, ROE, Customer Satisfaction, Asset Utilization etc.

•Develop Business Unit Specific Flow Downs

•Scope projects to ensure timely executionIV. Scope Projects

V. Complete Project Charter

•Leverage proven project management principles

Project Selection ApproachProject Selection Approach

II. Develop CTQ Flow Downs

I. Identify Strategic Business Priorities

•Examine financials and explore improvement opportunities with subject matter experts

III. Isolate Potential Areas of Focus

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I. Identify Strategic Business Priorities

TFS Strategy• Increase margins through operational excellence• Grow revenue faster than industry• Build a more capital-efficient security business• Create a customer-centric, data-driven, process-

focused culture

I. Identify Strategic Business Priorities

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I. Link to Strategic Goals

Projects must be aligned to the goals and objectives of the business unit.

No Science Projects!

I. Identify Strategic Business Priorities

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Critical to Satisfaction

CostCTC

QualityCTQ

DeliveryCTD

Invoice Right the First Time

Invoice Delivered On-Time

No Waste / Hidden Factory

A/R

Generate Invoice

Forward to Customer

Receive Payment

Collect Overdue

II. Develop CTQ Flow Downs

CTQ Flowdown

High Level Process Map

Structured “Top Down” Approach

II. Develop CTQ Flow Downs

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II. Develop CTQ Flow Downs

II. Develop CTQ Flow Downs

Unstructured “Bottom Up” Approach

“Pain Points”Leveragability

Detailed Process Map

Performance Metrics

Sweet to Low Hanging Fruit

COQ

Work Folder forwarded to

Design

Forward to appropriate

Design Project Manager

Design work sorted by job

type(Mech, Elect)

Design Project Manager assigns

Designer

Drawings Prepared

Equipment Ordered

(depends on design type

and schedule)

Drawing Submitted for AHJ Approval

Installation

Drawings forwarded to Construction

Drawings Reviewed by

Senior Designer

Drawings Complete?

NO

YES

Drawings by Senior

Designer?

YES

NO

Drawings Approved?

“As is” or “As Noted”

YES

NO

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III. Isolate Potential Areas of Focus

Financial Data

Operational Data

Resource Availability

III. Isolate Potential Areas Of Focus

Executable in 4 months

Don’t “Boil the Ocean”

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IV. Scope Projects

Problem Statement:

• Accounts receivable of $xxxM is $yyyM above the desired level. In addition, $zzzM is spent on administrative costs to address customer invoicing concerns and finance center opportunities.

• Total EBIT opportunity for accounts receivable = $XXXM

CTQ: (Critical To Quality):

• AR DSO

• Administration expenses to address invoicing and finance center concerns

Defect Definition:

• DSO greater than 60 days

• Admin time spent chasing invoicing and finance center errors

Project Objective:

• Improve DSO and invoicing errors

• Realize margin improvement of Y%

• Current Goal:

• DSO <= 60 days

Cost Benefits

• Reduce admin costs by $ZM

• Cash flow from accounts receivable

Internal/External Client Benefits:

• Improve cash flow

• Build customer relationships

Dependencies:

• Resolving customer quality issues

Progress to Date:

• TBD

IV. Scope Projects A/R

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Perfect Day

Problem Statement:

• Installation processes builds x% into the job to account for problems that occur on site during the installation process.

• Total cost of non-perfect day = $yyM

CTQ: (Critical To Quality):

• Margin

Defect Definition:

• Margin less than optimal

Project Objective:

• Understand what project management issues to address to ensure that bid margin for a job doesn’t slip.

Current Goal:

Cost Benefits:

• Reduce lost annual costs by $YYM

Internal/External Client Benefits:

• Improve margin and cash flow

• Build customer relationships

Dependencies:

• Resolving customer quality issues

Progress to Date:

• TBD

• Realize margin improvement of X%

IV. Scope ProjectsIV. Scope Projects

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V. Complete Project Charter

Month Project was completed (signed off by Steering Committee): Year Project was completed:

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total

000

0 0 0 0 0 0 0 0 0 0 0 0 0

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total000000

0 0 0 0 0 0 0 0 0 0 0 0 0

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total000000000

0 0 0 0 0 0 0 0 0 0 0 0 0

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total00

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total0000

00

0 0 0 0 0 0 0 0 0 0 0 0 010% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

0 0 0 0 0 0 0 0 0 0 0 0 0

NOTE: For this purpose year 1 is the first 12 months after project completion.

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Forecast Actual Forecast ActualFinancial Benefits:

- Revenue Improvement (EBIT) 0 0 0 0- Productivity & Cost Savings Benefits 0 0 0 0- Cash Flow Benefits (EBIT) 0 0 0 0

Total Financial Benefits: 0 0 0 0

Project Cost:- Restructuring & Severance 0 0 0 0- IT investment 0 0 0 0- Outside Professional Expenses 0 0 0 0- T & E 0 0 0 0- Other (List): 0 0 0 0 - __________________________ 0 0 0 0 - __________________________ 0 0 0 0

Total Project Cost 0 0 0 0

Return On Investment (ROI) 0 0 0 0

Forecast Actual Forecast ActualNon-Financial Benefits:

Customer Satisfaction & GoodwillEmployee SatisfactionOther (List) - __________________________ - __________________________

Percent (%)

Year 1 Year 2

Section 1 - Summary Project Information

Section 2 - Financial Benefits & ROI

Section 3 - Non-Financial Benefits

Year 1 Year 2

$(000's)

Project Champion:

Six Sigma Project Charter

Project Completion Date (Signed-Off)Project Start Date:

Division / Location:

Project Name / Code: AR - Low Dollar Invoice Collection Rates

Houston

Proj. No:

Name:

Information Technology

Problem Statement:

Project Objective:

Project Benefits:

Project Metric "Y":

Defect Definition:

Financial Summary:

Describe and Estimate Potential Project Leveragability: Amount $M

Year 1 (12 Mos) Year 2 (12 Mos)EBIT Benefits from Revenue Sources 0

Forecast

0

Receivable Dollars Outstanding

Receivable $s > 90days outstanding (included Bad Debt Write-Offs)

EBIT Benefits from Cash Flow SourcesTotal EBIT Benefits

EBIT Benefits from Cost Reduction0010500

Project Implementation CostNet Project Benefits

Six Sigma Project Charter

AR - Low Dollar Invoice Collection Rates

Houston

Process OwnerBU Deployment Champ

Black Belt

0

830018800

000

18800

Role:

71331660044128601859Master Black Belt

David Casares dcasares@tycoint.comajames@6-sigma.com

Team Makeupe-Mail:Phone:

Alex JamesTBD

Project Information Worksheet

Project Start Date:

Division / Loc./ Cost Ctr.:

Project Name:

Project Completion Date (Signed-Off)

Financial Analyst

Current >90 days AR balance for SG stands at $118.4 MM (dec '02). This amount comprises 30% of the total AR balance. Additonally, $15 MM has been set aside as Bad Debt Reserves. Delays and write-offs are severly impacting SG's cash flow.

Project would look to decrease write-offs in the Bad Debt reserve by 70% and reduce the amount of receivables in the >90 days bucket by 70%. As a result of further analysis we may determine multiple root causes driving bad debt write offs and receivable aging which would then be broken into smaller BB projects leveraged across districts ( contract size, small dollar invoices, retention policy, billing process )

Reduction of the Bad Debt reserves would have a one time EBIT impact to earnings potentially as large as $10.5mm (70% of the $15mm reserve). Reduction of the >90days balance by 70% would lead to a one time cash flow impact of $83MM and EBIT impact of ($8.3MM … assuming WACC 10%). All benefits will be a year one impact.

V. Complete Project Charter

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Project Evaluation ApproachProject Selection Criteria Yes No

1. Has the project been done already (or in progress)? 2. Is there a pre-determined solution to the project goals? 3. Does this project conflict with other projects? 4. Does this project have a high probability of success? 5. Is project linked/aligned to goals of the business? 6. Does the cost reduction opportunity meet the goals of the business? 7. Has the project been properly scoped? 8. Can starting and end points for the process be defined? 9. Does the Champion have functional control of impacted process? 10. Are metrics available, on Primary Metric – Y, or could they be developed quickly at low cost?

11. Is data collection relatively easy and does the process complete at least one cycle weekly?

12. Is there a “good” measurement system in place (on the Primary Metric – Y)?

13. Are resources available and supportive for this project (Process Owner, team, Champion)?

14. Can you define the defect definition for the project?

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You know you have chosen the right project when:

You care if it is completed…“skin in the game”

Linked to the business need and metrics

Clear “line of sight” and accountability

Clear financial impact…$250k plus

Scoped to ensure completion in 4-5 months

The project has a definable beginning and end

The project is open to thorough evaluation

One of many projects building a “cluster of projects”

Characteristics of Good ProjectsCharacteristics of Good Projects

Project Prioritization

Deb Dixon

17

Project Prioritization

• Once the Deployment Champion has 5-12 project ideas a filtering approach may be needed to determine which projects to assign first

• This approach acknowledges that the best filters for one business unit may or may not be the best filters for another area of the business

• Identifying filters for your business unit is not a trivial matter. One approach is to understand the goal and the customers associated with that goal.

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Project Filtering - History

One filter used to allocate resources to projects is the 2 X 2 matrix. The 2 X 2 matrix is one of the simpler approaches, but an approach that has withstood the test of time… where will I get the biggest impact – quickest.

Ease of CompletionHard Easy

Va

lue

Low-Hanging

Fruit!

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Documenting Your Filters

One of the easiest tools to document your filters and prioritize your projects is to use a tool called the “Cause and Effect Matrix.”

This Matrix is provides a quick visual of the projects under consideration and how they rated on the important filters chosen by the deployment champion/MBB and management board.

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Project Prioritization Tool

• The deployment champion applies a C&E matrix to select individual projects using the following top level requirements (examples):

1. Revenue (1 low, 5 high)2. Growth (1 low, 5 high)3. Employee Satisfaction (1 low

impact, 5 is large impact)4. Feasibility or Degree of Difficulty

(1 difficult, 5 easy) 5. Current Measurable Process

Performance (1 high, 5 low)6. 4-6 Month Target goal ($) for each

project, committed to by Champions/Process Owners

7. 4-6 Month Stretch goal ($) for each project, committed to by Champions/Process Owners

• If a project ranks high after sorting project totals for 1-5, 6 and 7,

this project should be a strong candidate for selection

The Cause and Effect (C&E) Matrix…

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Cause & Effect Matrix Steps

Identify key customer requirements (outputs) from process mapRank order and assign priority factor to each output(Usually on a 1 to 10 scale)Identify all process steps and materials (inputs) from the process mapEvaluate correlation of each input to each output

• Low score: changes in the input variable (amount, quality, etc.) have small effect on output variable

• High score: changes in the input variable can greatly affect the output variable

Cross multiply correlation values with priority factors and add across for each input

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Rating of Importance to Customer

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Filters Cos

t S

avin

gs

Total

Project Ideas1 A/R reduction 5 402 03 04 05 06 07 08 09 010 011 012 013 014 015 016 017 018 019 020 0

0

Total 40 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Cause & Effect Matrix