CHAPTER 12

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

CHAPTER 12CHAPTER 12

PROJECT MANAGEMENT

AND OUTSOURCING

PROJECT MANAGEMENT

AND OUTSOURCING

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PROJECT MANAGEMENT

• Project Advice– It is fine to celebrate success but it is more

important to heed the lessons of failure.– Good judgment is usually the result of

experience. And experience is frequently the result of bad judgment. But to learn from the experience of others requires those who have the experience to share the knowledge with those who follow.

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PROJECT MANAGEMENT

• Project management – the application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project

– Project management offers a strategic framework for coordinating the numerous activities associated with organizational projects

• Project management software – supports the long-term and day-to-day management and execution of the steps in a project

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PROJECT MANAGEMENT

• Project management interdependent variables

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PROJECT MANAGEMENT

• Cost, time and scope are interdependent variables

• You cannot change one without changing the others

– For example, decreasing a project’s timeframe means either increasing the cost of the project or decreasing the scope of the project to meet the new deadline

– Increasing a project’s scope means either increasing the project’s timeframe or increasing the project’s cost – or both – to meet the increased scope changes

• Project management is the science of making intelligent trade-offs among time, cost, and scope

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PROJECT MANAGEMENT

• A recent survey concluded that the failure rate of IT projects is much higher in organizations that do not exercise disciplined project management

• A successful project is typically on time, within budget, meets the business’s requirements, and fulfills the customer’s needs

• The Hackett Group analyzed its client database and discovered:

– 3 in 10 projects failed– 21 percent of companies state that they cannot adjust

rapidly to market changes– 1 in 4 validate a business case for an IT project after

its completion

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PROJECT MANAGEMENT

• Common reasons why IT projects fall behind schedule or fail

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PROJECT MANAGEMENT

• Expected growth for project management software

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PROJECT MANAGEMENT FUNDAMENTALS

• Project – a temporary endeavor undertaken to create a unique product or service

• Project management – the application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs and expectations

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• Project deliverable – any measurable, tangible, verifiable outcome, result, or item that is produced to complete a project or part of a project

• Project milestone – represents key dates when a certain group of activities must be performed

• Project manager – an individual who is an expert in project planning and management, defines and develops the project plan, and tracks the plan to ensure all key project milestones are completed on time

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• Project managers must take all of the activities below and ensure they flow smoothly to develop and deliver a successful project

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Choosing Strategic Projects

• Organizations must determine which projects to pursue

• Three common techniques for selecting projects

1. Focus on organizational goals

2. Categorize projects

3. Perform a financial analysis

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• Techniques for choosing strategic projects

– Focus on organizational goals—Managers are finding tremendous value in choosing projects that align with the organization’s goals. Projects that address organizational goals tend to have a higher success rate since they are important to the entire organization.

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– Categorize projects—There are various categories that an organization can group projects into to determine a project’s priority.• One type of categorization includes problem,

opportunity, and directives. 1. Problems are undesirable situations that prevent an

organization from achieving its goals. 2. Opportunities are chances to improve the organization. 3. Directives are new requirements imposed by management,

government, or some other external influence.

• It is often easier to obtain approval for projects that address problems or directives because the organization must respond to these categories to avoid financial losses.

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– Perform a financial analysis—A number of different financial analysis techniques can be performed to help determine a project’s priority. • A few of these include net present value, return on

investment, and payback analysis. • These financial analysis techniques help determine

the organization’s financial expectations for the project

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Setting The Project Scope

• Project scope – defines the work that must be completed to deliver a product with the specified features and functions, and typically includes:

– Project product – a description of the characteristics the product or service has undertaken

– Project objectives – quantifiable criteria that must be met for the project to be considered a success

– Project deliverables – any measurable, tangible, verifiable outcome, result, or item that is produced to complete a project or part of a project

– Project exclusions – products, services, or processes that are not specifically a part of the project

– Define the scope to build a basic calculator• The calculator must have numbers between 0 and 9 and be able to

add, multiply, divide, and subtract• Notice that the scope is the 30,000 foot view – it doesn’t define the

style, color, layout, materials, etc.

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• SMART criteria are useful reminders on how to ensure that the project has created understandable and measurable objectives

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• What happens when objectives are not SMART– If an objective is not specific then it is open to interpretation– If an objective is not measurable then there is no way to determine

if the project is on track– If an objective is not agreed upon then chances are high the

project will fail– If an objective is not realistic then chances are high that the project

will fail– If an objective does not include a time frame then there is no way

to determine if the project is on track– Why is the following not SMART?

• I will work hard this semester to achieve my goals?– Does not state what the goals are– Does not state how to measure working hard– Might not be realistic depending on the goals– Does have a time frame of a semester

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• Why is the following not SMART?– I will work hard this semester to achieve my

goals?• Does not state what the goals are• Does not state how to measure working hard• Might not be realistic depending on the goals• Does have a time frame of a semester

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Managing Resources and Maintaining the Project Plan

• Project plan – a formal, approved document that manages and controls project execution

– A project plan should be prepared by the team, rather than by the individual project manager. WHY?WHY?

• A well-defined project plan should be:– Easy to understand and read– Communicated to all key participants– Appropriate to the project’s size, complexity, and

criticality– Prepared by the team, rather than by the individual

project manager

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• Two primary diagrams used in project planning include PERT and Gantt charts

– PERT (Program Evaluation and Review Technique) chart – is a graphical network model that depicts a project’s tasks and the relationships between those tasks (Dependencies and Critical paths are found in PERT charts)

– Gantt chart – a simple bar chart that depicts project tasks against a calendar

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• Dependency – a logical relationship between the project tasks, or between a project task and a milestone

• Critical path – a path from the start to the finish that passes through all the tasks that are critical to completing the project in the shortest amount of time

• Why do you need to create dependencies?– Dependencies inform the project manager of tasks

associated with or affected by another task

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• PERT Chart EXPERT – PERT Chart Example

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• MS Project – Gantt Chart Example

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CHANGE MANAGEMENT FUNDAMENTALS

• Good project managers understand the fundamentals of project management and how to effectively deal with change management and risk management

• The Only Constant Is Change - Heraclitus

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• Change management – a set of techniques that aid in evolution, composition, and policy management of the design and implementation of a system

– Change management system – a collection of procedures to document a change request and define the steps necessary to consider the change based on the expected impact of the change

– Change control board (CCB) – responsible for approving or rejecting all change requests

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• Additional reasons why change occurs– A resources quits or becomes ill– Company changes strategic direction– Leadership changes– Technology changes– Environment changes– Regulations or laws change

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Preparing for Change

• What can you do to anticipate and deal with change?– Change control board– Monitor change– Project plan

• Three Important Guidelines for Effectively Dealing with Change Management

1. Institute change management polices - Create clearly defined policies and procedures that must be followed each time a request for change is received

2. Anticipate change - View change as an opportunity and embrace it

3. Seek change - Every 6 to 12 months look for changes that may be windows of opportunity. Review successes and failures to determine if there are any opportunities for innovation

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RISK MANAGEMENT FUNDAMENTALS

• Project risk – an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective

– Risk management – the process of proactive and ongoing identification, analysis, and response to risk factors

• What type of risks effect you? How can you deal with those risks?

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Mitigating Risk

• Actions to improve risk management capabilities– Promote project leadership skills—Hire individuals with strong

project management and project leadership skills as well as business management skills. These individuals can be extremely helpful in advisory and steering committee roles as well as coaching roles.

– Learn from previous experience—Over many years of collective experiences, organizations have encountered hundreds of large IT projects. Document and revisit development methodologies, software tools, and software development best practices in order to share this vital information across the organization.

– Share knowledge—Working in team or group environments tends to yield the most successful projects since individuals can share their unique learning experiences.

– Create a project management culture—Orient people from day one on the importance of project management, change management, and risk management. Be sure to measure and reward project management skills and promote individuals based on successful projects.

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Successful Project Management Strategies

• Define project success criteria. – At the beginning of the project, make sure the stakeholders share a

common understanding of how they will determine whether the project is successful.

– Too often, meeting a predetermined schedule is the only apparent success factor, but there are certainly others. Some examples are:

• increasing market share, reaching a specified sales volume or revenue, achieving specific customer satisfaction measures, retiring a high maintenance legacy system, and achieving a particular transaction processing volume and correctness.

• Develop a solid project plan. – The hard part of developing a plan is the thinking, negotiating,

balancing, and communication project managers will have to do to develop a solid and realistic plan.

– The time they spend analyzing what it will take to solve the business problem will reduce the number of changes later in the project.

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Successful Project Management Strategies

• Divide and conquer. Break all large tasks into multiple small tasks to provide more accurate estimates, reveal hidden work activities, and allow for more accurate, fine-grained status tracking.

• Plan for change. Things never go precisely as planned on a project; therefore, the budget and schedule should include some contingency buffers at the end of major phases to accommodate change.

• Manage project risk. Failure to identify and control risks will allow the risks to control the project. Be sure to spend significant time during project planning to brainstorm possible risk factors, evaluate their potential threat, and determine the best way to mitigate or prevent them.

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OUTSOURCING

• Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

• This section focuses on businesses’ need to undertake every effort to re-think and re-adopt new processes

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OUTSOURCING

Story 1: "The Customer is Never Right" – We supplied the contract house with everything they needed to

get the job done. The first thing they did was tell us how our tools and equipment were out-dated, and besides we were using them incorrectly. (Due to legacy issues and budget restrictions, constant hardware and software upgrades are not a way of life here.) The next thing they did was re-format all of the code on the project, including code outside the scope of their portion, to meet their own formatting preferences. Any request for information was like pulling teeth. They made me and everyone on my team feel like we were imposing anytime we asked them about the project (usually technical questions.)

– The most appalling thing is that towards the end of the project, they debated us on how a portion of our system worked!!! It was very insulting to have them infer that they understood our system better than we did. They have been blacklisted from our entire corporation.

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OUTSOURCING

Story 2: "The Underbid" – The contract house gave us a very competitive fixed-bid on a project.

This raised some concerns, but not enough to rule them out - money talks, and we were trying to spend as little as possible. In retrospect, going with them was a big mistake, but hindsight is always 20-20, right? As they got further into the project, the scope of the project "grew". Why? Because they did not give the project's complexity any credit when they bid. We were not adding features or functionality - they were just beginning to realize the scope of the work.

– It was clear their sales force had over-committed their engineering staff in a terrible way. Their engineers resented us and their own management, and it showed in their dealings with us. Not even halfway through the project, they admitted they had underbid - now they needed more money to complete the project. (Ironic, since one of the primary factors in choosing them was the attractive pricetag.) The project was completed by our own staff in-house once we decided we'd cut our losses and sever our relationship.

– I don't know if we would outsource again. I feel like we bought software development services from a used-car salesman.

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OUTSOURCING

• Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems – Insourcing has been instrumental in creating a

viable supply of IT professionals and in fact in creating a better quality workforce combining both technical and business skills

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OUTSOURCING

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OUTSOURCING

• Reasons companies outsource

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OUTSOURCING

• Factors driving outsourcing growth include:– Core competencies– Financial savings– Rapid growth– Industry changes– The Internet– Globalization

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THE OUTSOURCING PHENOMENON

• According to research firm IDC, the worldwide IT outsourcing market will reach $230 billion by 2009

• According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”– Best Buy is the number one U.S. specialty retailer for

consumer electronics, personal computers, entertainment software, and appliances

– Best Buy outsourced its enterprise systems to Accenture

– The results of this outsourcing arrangement included a 20 percent increase in revenue which translated into a $25 million profit

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• Most organizations outsource their noncore business functions, such as payroll and IT

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• Outsourcing growth drivers– Globalization – As markets open worldwide,

competition increases– The Internet – Barriers to entry are reduced by the

Internet, such as a bookstore without an actual store (Amazon.com)

– Growing economy and low unemployment rate – Building a competitive workforce is harder and more expensive

– Technology – Technology is advancing at such an accelerated rate that companies often lack the resources, workforce, or expertise to keep up

– Deregulation – As private industries deregulate (telecommunications, energy) markets open and competition increases

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Outsourcing Benefits• Outsourcing benefits include:

– Increased quality and efficiency – Reduced operating expenses– Outsourcing non-core processes allows focus on core

competencies– Reduced exposure to risk– Service providers economies of scale, expertise, and best

practices– Access to advanced technologies– Increased flexibility – Avoid costly outlay of capital funds– Reduced headcount and associated overhead expense– Reduced frustrations and expense related to

hiring/retaining employees – Reduced time to market for products or services

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OUTSOURCING OPTIONS

• Onshore outsourcing – engaging another company within the same country for services

• Nearshore outsourcing – contracting an outsourcing arrangement with a company in a nearby country

• Offshore outsourcing – using organizations from developing countries to write code and develop systems

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OUTSOURCING OPTIONS

• Big selling point for offshore outsourcing “inexpensive good work”

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OFFSHORE OUTSOURCING• Three categories of outsourcing countries: leaders, up-and-

comers, rookies

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The Leaders

• Canada

• India

• Ireland

• Israel

• Philippines

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The Leaders

• Canada

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The Leaders

• India

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The Leaders

• Ireland

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The Leaders

• Israel

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The Leaders

• Philippines

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The Up-and-Comers

• Brazil

• China

• Malaysia

• Mexico

• Russia

• South Africa

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The Up-and-Comers

• Brazil

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The Up-and-Comers

• China

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The Up-and-Comers

• Malaysia

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The Up-and-Comers

• Mexico

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The Up-and-Comers

• Russia

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The Up-and-Comers

• South Africa

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The Rookies

• Argentina

• Chile

• Costa Rica

• New Zealand

• Thailand

• Ukraine

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The Rookies

• Argentina

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The Rookies

• Chile

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The Rookies

• Costa Rica

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The Rookies

• New Zealand

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The Rookies

• Thailand

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The Rookies

• Ukraine

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THE CHALLENGES OF OUTSOURCING

• Outsourcing challenges include– Contract length

1. Difficulties in getting out of a contract2. Problems in foreseeing future needs3. Problems in reforming an internal IT department after the

contract is finished– Competitive edge – Effective and innovative use

of IT can be lost when using an outsourcing service provider

– Confidentiality – Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors

– Scope definition – Scope creep is a common problem with outsourcing agreements

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FUTURE OUTSOURCING TRENDS

• Outsourcing is becoming less of a cost-saving strategy and more an overall context for business

• Outsourcing is approaching commodity status

• Companies should look for value-based pricing rather than the lowest possible price

• Multisourcing – a combination of professional services, mission-critical support, remote management, and hosting services that are offered to customers

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OPENING CASE QUESTIONSChange at Toyota

9. How could Toyota benefit from outsourcing?

10. If you had to choose a country to recommend for outsourcing, which country would it be and why?

11. Explain the issues facing Toyota from its internal IT department if it decided to outsource the project management of the development of a new system

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OPENING CASE QUESTIONSChange at Toyota

12.What types of ethical issues might Toyota encounter when considering outsourcing?

13.What types of security issues might Toyota encounter when considering outsourcing?

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CLOSING CASE ONEToronto Transit

1. Describe Gantt charts and explain how TTC could use one to communicate project status

2. Describe PERT charts and explain how TTC could use one to communicate project status

3. How could TTC use its Master Schedule to gain efficiencies in its supply chain?

4. How could TTC use its Master Schedule to identify change management and risk management issues?

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CLOSING CASE TWOCircuit City

1. Explain why anticipating change would have helped Circuit City remain as an industry leader

2. Why are project management, change management, and risk management critical to a global company such as Circuit City?

3. Assess the impact on Circuit City’s business if it failed to implement change management strategies as it revamped its global organization

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CLOSING CASE TWOCircuit City

4. What are some of the potential risks facing Circuit City’s new business model?

5. Why would Opportunity, Resource, and Time & Expense applications be of value to a company like Circuit City?

6. Why would Circuit City benefit from implementing good risk management and change management techniques?

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CHAPTER 12