CSC 443- Lecture 2- Project Integration Management

LECTURE 2 THE PROJECT INTEGRATION MANAGEMENT

Instructor: Dr. Safwan Qasem Course: CSC 443: IT Project Management

1 CSC 443- IT Project Management Dr. Safwan Qasem

Spring 2011-

2012

Textbooks for CSC 443

This course is using following resources as references:

A Guide to The Project Management Body of Knowledge (PMBOK Guide) Fourth Edition, 2008 PMI

PMP Exam Prep, Ritas Course in a Book for passing the PMP Exam, Sixth Edition 2009 Rita Mulcahy, PMP

Lecture Overview

This lecture is related to the contents of

Chapter 4 in the PMBOK Guide.

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CSC 443- IT Project Management Dr. Safwan Qasem Spring 2011-2012

Project Integration Management

Spring 2011-2012 CSC 443- IT Project Management Dr. Safwan Qasem

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Process and activities needed to identify, define,

combine, unify, and coordinate the various

processes and project management activities

within the Project Management Process Groups.

Integration Management Processes


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Develop Project CharterThe process of developing a document that formally authorizes a project or a phase and documenting initial requirements that satisfy the stakeholders needs and expectations.

Develop Project management PlanThe process of documenting the actions necessary to define, prepare, integrate, and coordinate all subsidiary plans.

Direct and manage Project executionThe process of performing the work defined in the project management plan to achieve the projects objectives.

Monitor and Control Project workThe process of tracking, reviewing, and regulating the progress to meet the performance objectives defined in the project management plan.

Perform Integrated Change ControlThe process of reviewing all change requests, approving changes, and managing changes to the deliverables, organizational process assets, project documents, and the project management plan.

Close Project or PhaseThe process of finalizing all activities across all of the Project Management Process Groups to formally complete the project or phase.

Project Integration Management

Knowledge

Area

Process

Initiating Planning Executing Monitoring & Contol Closing

Scope

Develop Project

Charter

Develop Project Management

Plan

Direct and Manage Project

Execution

Monitor and Control Project Work

Perform Integrated Change Control

Close Project

Enter phase/

Start project

Exit phase/

End project

Initiating

Processes

Closing

Processes

Planning

Processes

Executing

Processes

Monitoring &

Controlling Processes

4.1 Develop Project Charter

The process of developing a document that formally authorizes a project or a phase and documenting initial requirements that satisfy the stakeholders needs and expectations

Inputs

1. Project statement of

work

2. Business case

3. Contract

4. Enterprise environmental

factors

5. Organizational process

assets

Tools &

Techniques

1. Expert judgment

Outputs

1. Project charter

Develop Project Charter (Input)

Project are authorized by someone external to the project such as sponsor, PMO,

portfolio steering committee.

Project charter can be created by them or delegated to Project Manager.

Statement of Work (SOW)

A narrative description of products or services to be delivered by the project.

The SOW references:

Business need

Product scope description

Strategic plan

Business case

Provide the necessary information from business standpoint to determine

whether or not the project is worth the required investment.

Project Selection

Two categories:

1. Benefit measurement methods (Comparative approach)

Murder board (a panel of people who try to shoot down a new project idea)

Peer review

Scoring models

Economic models (described next)

2. Constrained optimization methods (Mathematical approach)

Linear programming

Integer programming

Dynamic programming

Multi-objective programming

Project Selection Economic Models

Present value (PV): The value today of future cash flows

Net present value (NPV): Project with positive & greater NPV value is better

Internal rate of return (IRR): Project with greater IRR value is better

Payback period: The number of time periods it takes to recover your investment in the project before you start

accumulating profit.

Benefit-cost ratio: compares the benefits to the costs of different options

relates to costing projects and to determining what work should be done

Project with greater benefit-cost ratio value is better

http://www.onemint.com/2010/11/23/what-is-irr-and-how-is-it-calculated/

nr1

FVPV

FP = future value r = interest rate n = number of time period

Payback period


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The payback period is the length of time it takes the company to recoup the initial costs of producing the product or service of the project. This method compares the initial investment to the cash inflows expected over the life of the product or service.

For example, say the initial investment on our project is $200,000 with expected cash inflows of $25,000 per quarter every quarter for the first 2 years, and $50,000 per quarter from thereon. The payback period is 2 years and can be calculated as follows:

Cash inflows = $25,000 x 4 (quarters in a year) = $100,000/year total inflow

Year 1 inflows = $100,000

Year 2 inflows = $100,000

Total = $200,000

Payback is reached in 2 years.

The fact that inflows are $50,000 per quarter starting in year 3 makes no difference as payback is reached in 2 years.

Payback period is the least precise of all the cash flow calculations. Because payback period does not consider the value of the cash inflows made in later years, commonly called the time value of money.

Payback period


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Project A Project B

Initial Investment $ 300 000 $ 300 000

Year 1 Income $ 20 000 $ 280 000

Year 2 Income $ 280 000 $ 10 000

Year 3 Income $ 50 000 $ 10 000

Year 4 Income $ 100 000 $ 180 000

Year 5 Income $ 50 000 $ 10 000

Balance $ 200 000 $ 100 000

Payback Period is 2 years 3 years

Considering Payback period which project is better?

Considering a cost of capital 10 % per year, which project is the best?

Net Present Value

Spring 2011-2012

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CSC 443- IT Project Management Dr. Safwan Qasem

Project A (Cost of Capital 12%) Project B (Cost of Capital 12%)

Internal rate of return (IRR)


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Internal rates of return (IRR) are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project.

Assuming all projects require the same amount of up-front investment, the project with the highest IRR would be considered the best and undertaken first.

The internal rate of return on an investment or project is the that makes the Net Present Value of all cash flows (both positive and negative) from a particular investment equal to zero.

year

yearIRR

eFutureValuNPV

)1(

Benefit-cost ratio


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benefit-cost ratio (BCR) is an indicator, used in the formal discipline of cost-benefit analysis, that attempts to summarize the overall value for money of a project or proposal. A BCR is the ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary terms. All benefits and costs should be expressed in discounted present values.

The higher the BCR the better the investment. General rule of thumb is that if the benefit is higher than the cost the project is a good investment.

Project Selection Important Terms

Economic Value Added (EVA): concerned with whether the project returns to the company more value than it costs.

Opportunity Cost: the opportunity given up by selecting one project over another

Sunk Costs: Are expended costs

Should not be considered when deciding whether to continue with a troubled project.

Law of Diminishing Returns: after a certain point, adding more input/resource will not produce a proportional

increase in productivity.

Economic Value Added (EVA)


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From a commercial standpoint, Economic Value Added (EVA) is the most

successful performance metric used by companies and their consultants.

Simply, EVA is the profit earned by the firm less the cost of financing the

firm's capital. The idea is that value is created when the return on the firm's

economic capital employed is greater than the cost of that capital;

EVA = net operating profit after taxes a capital charge

therefore EVA = NOPAT (c capital), or alternatively

EVA = (r x capital) (c capital)

Where r = rate of return, and c = cost of capital

NOPAT is the net operating profit after tax, with adjustments and

translations, generally for the amortization of goodwill, the capitalization

of brand advertising and others non-cash items.

Opportunity Cost


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Scarcity of resources is one of the more basic concepts of economics. Scarcity necessitates trade-offs, and trade-offs result in an opportunity cost.

While the cost of a good or service often is thought of in monetary terms, the opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that involves a choice between two or more options has an opportunity cost.

Opportunity cost contrasts to accounting cost in that accounting costs do not consider forgone opportunities.

Consider the case of an MBA Student who pays $30,000 per year in tuition and fees at a private university. For a two-year MBA program, the cost of tuition and fees would be $60000. This is the monetary cost of the education.

However, when making the decision to go back to school, one should consider the opportunity cost, which includes the income that the student would have earned if the alternative decision of remaining in his or her Job had been made. If the student had been earning $50,000 per year and was expecting a 10% salary Increase in one year, $105,000 in salary would be foregone as a result of the decision to return to school. Adding this amount to the educational expenses results in a cost of $165,000 for the degree.

http://www.netmba.com/econ/micro/cost/opportunity/

Sunk Costs


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In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken.

In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that an economic actor not let sunk costs influence one's decisions, because doing so would not be rationally assessing a decision exclusively on its own merits.

Evidence from behavioral economics suggests this theory fails to predict real-world behavior. Sunk costs greatly affect actors' decisions, because many humans are loss-averse and thus normally act irrationally when making economic decisions.

http://en.wikipedia.org/wiki/Sunk_costs

Law of Diminishing Returns


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Law of diminishing returns, in economics, law stating that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point.

For example, if more and more laborers are added to harvest a wheat field, at some point each additional laborer will add relatively less output than his predecessor did, simply because he has less and less of the fixed amount of land to work with.

The principle, first thought to apply only to agriculture, was later accepted as an economic law underlying all productive enterprise. The point at which the law begins to operate is difficult to ascertain, as it varies with improved production technique and other factors.

Read more: http://www.answers.com/topic/law-of-diminishing-returns#ixzz1m1SGDC2l

Project Selection Important Terms

Working Capital current assets minus current liabilities for an organization or

amount of money the company has available to invest

Depreciation Straight line depreciation

The same amount of depreciation is taken each year.

Accelerated depreciation

Depreciates faster than straight line

Two forms: (1) Double Declining Balance, (2) Sum of the Years Digits

Develop Project Charter (Tools & Techniques, Output)

Expert Judgment, includes:

Project Charter, includes: Project purpose or justification,

Measurable project objectives and related success criteria,

High-level requirements,

High-level project description,

High-level risks,

Summary milestone schedule,

Summary budget,

Project approval requirements

Assigned project manager, responsibility, and authority level

Name and authority of the sponsor or other person(s) authorizing the project charter.

Other unit within organization

Consultants

Stakeholders including customer or sponsor

Subject matter experts

PMO

Industry groups

Professional & technical association

4.2 Develop Project Management Plan

The process of documenting the actions necessary to define, prepare, integrate and coordinate all subsidiary plans.

Inputs

1. Project charter

2. Business case

3. Outputs from planning

processes


factors


assets

Tools &

Techniques

1. Expert judgment

Outputs

1. Project management plan

Project Management Plan (Output)

The strategy for managing the project and the processes in each knowledge area

Covers how you will define, plan, manage, and control the project.

Also includes:

Change management plan

Configuration management plan

Requirements management plan

Process improvement plan

How to handle a problem on a project?

look at your management plan to see how you planned to handle such a problem.

Baseline (Performance measurement baseline)

The project management plan contains scope, schedule, and cost baselines, against which the project manager will need to report project performance.

Baseline created during planning. Scope baseline

The project scope statement, work breakdown structure (WBS), and WBS dictionary

Schedule baseline The agreed-upon schedule, including the start and stop times

Cost baseline The time-phased cost budget

Deviations from baselines are often due to incomplete risk identification and risk management.

Change Management Plan

Describes how changes will be managed and controlled.

Covers for the project as whole

May includes: Change control procedures (how and who)

The approval levels for authorizing changes

The creation of a change control board to approve changes

A plan outlining how changes will be managed and controlled

Who should attend meetings regarding changes

Tools to use to track and control changes

Each knowledge area are described in the individual management plans

Configuration Management Plan

Defines how you will manage changes to the

deliverables and the resulting documentation, including

which organizational tools you will use

4.3 Direct & Manage Project Execution

The process of performing the work defined in the project

management plan to achieve the projects objectives.

Inputs

1. Project management

plan

2. Approved change

request


factors


assets

Tools &

Techniques

1. Expert judgment

2. Management information system

Outputs

1. Deliverables work

2. Performance information

3. Change requests

4. Project management plan updates

5. Project document updates

4.4 Monitor & Control Project Work

The process of tracking, reviewing, and regulating the progress to meet the performance objectives defined in the project management plan.

Inputs


plan

2. Performance reports


factors


assets

Tools &

Techniques

1. Expert judgment

Outputs

1. Change requests



4.5 Perform Integrated Change Control

The process of reviewing all change requests, approving

changes and managing changes to deliverables,

organizational process assets, project documents and

the project management plan.

Inputs


plan

2. Performance reports


factors


assets

Tools &

Techniques

1. Expert judgment

Outputs

1. Change requests



4.6 Closing Project or Phase

The process of of finalizing all activities across all of the Project Management Process Groups to formally complete the project or phase.

Inputs


plan

2. Accepted deliverables


assets

Tools &

Techniques

1. Expert judgment

Outputs

1. Final product, service or result


assets updates

Documents

CSC 443- Lecture 2- Project Integration Management