Chp 2: Conceptualizing and Initializing the IT...

Chp 2: Conceptualizing and Initializing the IT ProjectSlides by: Ms. Shree Jaswal

1Chapter 2 Slides by Ms. Shree J.

Topics:

An information technology project methodology (ITPM)project feasibilityrequest for proposal (RFP)the business caseproject selection and approvalproject contractingIT governance and the project office


MethodologyA strategic level plan for managing and controlling IT projectsA template for initiating, planning, & developing an information systemRecommends in support of an IT project:◦ phases◦ deliverables◦ processes◦ tools◦ knowledge areas

Must be flexible and include best “practices” learned from experiences over timeOver time, an organization’s methodology incorporates a set of best practices that fits the organization and the projects it undertakes.

Chapter 2 Slides by Ms. Shree J. 3

An IT Project Methodology


Phases : Phase 1Phase 1: Conceptualize and Initialize

It focuses on defining the overall goal of the project as goal aids in-◦ Defining the project’s scope and guides decisions

throughout the project life cycle◦ Using at the end of project to evaluate the project’s

success.Alternatives for meeting the goal are analyzed with respect to cost-benefit, feasibility, risk etc. and the best alternative is chosen and summarized into the business case. Senior management will use the business case to decide whether the proposed project should be funded.


Phases : Phase 2Phase 2: Develop the Project Charter and

Detailed Project PlanProject charter defines how the project will be organized and how the project alternative that was recommended and approved for building will be implemented.It clarifies project’s goal & defines the project’s objectives in terms of scope, schedule, budget and quality standards.It also gives authority to PM to start tasks related to SDLC


Phases : Phase 2Project plan provides all the tactical details concerning who will carry out the project work and when.Business case and project charter/plan must remain separate for 3 reasons:1. Much time and understanding must be devoted

to understanding the “big picture”.2. Combining strategic with tactical planning can

confuse the project’s goal and objectives with how they should be achieved.

3. Time- why spend time, money and resources on developing a detailed plan for a project that should not be undertaken?


Phases : Phase 3Phase 3: Execute and Control the Project

using approach such as the SDLCIt focuses on carrying out the project plan to deliver the IT product and managing the project’s processes to achieve the project’s goal.In this phase, the PM ensures that the environment and infrastructure to support the project includes:◦ Acquisition of appropriate people and technical

infrastructure◦ Setting scope, schedule, budget & quality controls◦ Making various plans like detailed risk plan, procurement

plan, quality mgmt plan, change mgmt plan, testing plan, implementation plan etc


Phases : Phase 4Phase 4: Close Project

In this the project team prepares a final project report and presentation to verify that project has been completed as per the project scope.These give the project sponsor confidence that the project has been completed and makes the formal approval and acceptance of the project.Final cost of the project can be determined at this time.The PM and project team formally close the project by closing all project accounts, archiving all project documents & files and releasing project resources.


Phases : Phase 5Phase 5: Evaluate Project Success

Post mortem by project manager and team of entire projectEvaluation of team members by project managerOutside evaluation of project, project leader, and team membersEvaluate project’s organizational value


IT Project Management Foundation


Project Management Processes◦ Initiating processes

◦ Planning processes

◦ Executing processes

◦ Controlling processes

◦ Closing processes

Project Objectives

IT Project Management Foundation

Tools - e.g. CASEInfrastructure1. Organizational Infrastructure

2. Project Infrastructure Project Environment Roles and Responsibilities of team members Processes and Controls

3. Technical Infrastructure

Project Management Knowledge Areas◦ As an organization gains more experience with projects over

time, the lessons learned from every project contribute to each of the nine areas of PMBOK


Project feasibility

Purpose of feasibility study is investigating the problem and developing a solution in sufficient detail to determine if it is economically viable and worthy of developmentIt is done in the 1st phase i.e conceptualize and initialize.


Project Feasibility


SDO=The System Development Organization

Request for proposalFeasibility study usually being a time consuming process that requires a particular expertise, the user typically chooses to bring in a contractor (SDO)The user notifies one or more contractors on his bidders list, internal or external, by sending them a document called RFP.The dual purpose of the RFP is to outline the user’s idea (problem, need etc.) & to solicit suggestions (proposals) for solutions- usually with the intent of awarding a contract for the best one.The RFP must be clear, concise & complete.


Request for proposalContents of RFP

1. Background

Very basic idea about the project

2. Statement of work

Description about problem, need, type of solutions, scope of work, work to be included or excluded, criteria for acceptance of end item, specifications and standards, expected completion date, expected relationship between user and contractor


Request for proposal

3. Proposal requirements

Proposal contents and format, data requirements, submission location and deadline

4. Selection criteria

Technical ability, bid price, experience, plan

5. Technical information and data

Technical performance requirements and standards, address of contact person for requesting additional data (to develop a solution and prepare the price quotation)


What is a Feasibility Study?• Objective of feasibility study is to ensure that

the organization is concentrating on the “right problem”

• A feasibility study involves determining:

1. Information needs of the prospective users, and

2. Resource requirements, costs, benefits, and feasibility of the project

Feasibility Study


Feasibility StudyThe needs given in RFP may be incomplete or vague, so

first step of feasibility study is to restate the needs. For that following steps are done:

1. Ask the user to state the needs as clearly as possible2. Ask the user a complete set of questions to further elicit the

needs3. Conduct research to better understand the needs4. Based on information from steps 2 and 3 restate and

document the needs5. Give restated needs to the user.


Feasibility Study (Problems in getting user needs)Attaining a good definition of needs is not easy. Dr.

Davidson Frame describes the following troublesome aspects: Some needs are ever-changing.Some needs are only vaguely perceivedSolutions are confused with needsThe needs identified are for the wrong userThere is more than one user, and their needs differUser’s needs are distorted by “experts”


Selection of ProposalA proposal is selected on basis of following

considerations:Ability of solutions to satisfy stated needsReturn on InvestmentProject Plan and managementReputation of contractorLikelihood of success or failure( risks)Fit to contractor resources and technological capability.


Selection of ProposalTwo methods for selecting the best proposals1.Screening system – that rejects proposals that fail

to meet minimal requirements2.Checklist or weighted checklist for rating the

proposals according to a list of evaluation criteria. The proposal with overall high score wins.a) simple ratingeach proposal is reviewed and given scores Sj for each criterion j.

S= ∑ Sj where j=1,2,3….


Selection of Proposalb) weighted rating

relative importance of a criterion j is indicated by an assigned weight Wj. After a score(Sj) has been given to a criterion, the score is multiplied by the weight of the criterion .

S= ∑ SjWj where j=1,2,3…. And∑ Wj = 1.


Example


Criteria 1 2 3 4 5

technical solution approach bad poor adequate good excellent

price of contract >1.8 1.6-1.8 1.4-1.6 1.2-1.4 <1.4

project organization & mgmt. bad poor adequate good excellent

likelihood of meeting cost/schedule targets bad poor adequate good excellent

reputation of contractor bad poor adequate good excellent

Example contd…Simple Rating

Scores

Criteria Iron butterfly Lowball Modicum

technical solution approach

price of contract

project organization & mgmt.

likelihood of meeting cost/schedule targets

reputation of contractor

Sum


Example contd…Weighted Rating

Criteria Weights

technical solution approach 0.25

price of contract 0.25

project organization & mgmt. 0.2

likelihood of meeting cost/schedule targets 0.15

reputation of contractor 0.15

Sum 1


Project ContractingProposal finalists are notified when the user has determined that at least one of the proposals is acceptable.When a contractor has been selected, the recommendation is submitted to user top mgmt for approval.On approval, contract is awarded to the winner.If none of the proposals are acceptable or the feasibility studies reveal that the systems development process would be too costly, risky or time-consuming or have insufficient return then the project is terminated.


Project ContractingContracting is ubiquitous in project managementBy contracting the work the user is not relinquishing control over the project.The contract should clearly specify the customer’s role in tracking progress & making trade-off decisions and identify those project areas where the customer has authority for decisions or supervision over contractor.


Project Contracting


Negotiating the contractDifferent contractual arrangements offer

advantages to user and contractor, depending on nature of the projectFixed price – the price paid by the customer for the project is fixed regardless of the cost incurred by the contractorCost-Plus – The price paid by the customer is based on the cost incurred in the project plus the contractor's fee.Incentive – The amount paid by the customer depends on the contractor’s performance. They can either get a bonus or penalty


The Business CaseDefinition of Business Case: an analysis of the organizational value, feasibility, costs, benefits, and risks of the project plan.Attributes of a Good Business Case◦ Details all possible impacts, costs, benefits◦ Clearly compares alternatives◦ Objectively includes all pertinent information◦ Systematic in terms of summarizing findings


Process for Developing the Business Case


Developing the Business CaseStep 1: Select the Core Team with a goal of providing the following advantages:

CredibilityAlignment with organizational goalsAccess to the real costsOwnershipAgreementBridge building

Core team should include managers, business specialists, users & IT specialists.


Developing the Business CaseStep 2: In IT project mgmt methodology, the project’s overall goal and measure of success is referred as the project’s MOV. Define Measurable Organizational Value (MOV) the project’s overall goal

MOV must:be measurableprovide value to the organizationbe agreed uponbe verifiable

Aligning the MOV with the organizational strategy and goals.


The IT Value Chain


Project Goal ?Install new hardware and software to improve our customer service to world class levels

Respond to 95% of our customers’ inquiries within 90 seconds with less than 5% callbacks about the same problem.


versus

A Really Good MOV

Our goal is to land a man on the moon and return him safely by the end of the decade.

- John F. Kennedy


Steps to develop MOVMOV Step 1 - Identify the desired area

of impactStrategiccustomerfinancialoperationalsocial


Steps to develop MOV

MOV Step 2 - Identify the desired value of the IT project

BetterFasterCheaperDo more


Steps to develop MOVMOV Step 3 - Develop an Appropriate

Metric• provide target• set expectations• enable success/failure determination• common metrics

Money ($ £ ¥) Percentage (%)Numeric Values


Steps to develop MOVMOV Step 4 - Set a time frame for

Achieving MOVMOV Step 5 - Verify and Get Agreement

from the Project Stakeholders


Steps to develop MOVMOV Step 6 - Summarize MOV in a Clear, Concise Statement or Table.


Year MOV

1 20% return on investment 500 new customers

2 25% return on investment1,000 new customers

3 30% return on investment1,500 new customers

Developing the Business Case

Step 3: Identify Alternatives◦ Base Case Alternative: It describes how the

organization would perform if it maintained the status quo- i.e it did not pursue any of the options described in the business case.

◦ Alternative StrategiesChange existing process sans IT investmentAdopt/Adapt systems from other organizational areasReengineer Existing SystemPurchase off-the-shelf Applications packageCustom Build New Solution



Step 4: Define Feasibility and Asses Risk◦ Economic feasibility◦ Technical feasibility◦ Organizational feasibility◦ Other feasibilities – legal & ethicalRisk focus on◦ Identification◦ Assessment◦ Response


Developing the Business CaseStep 5: Define Total Cost of Ownership (TCO)- It generally refers to the total cost of acquiring, developing, maintaining and supporting the application system over its useful lifeTCO includes such costs as:◦ Direct or Up-front costs: Initial purchase price of

all hardware, software etc.

◦ Ongoing Costs: Salaries, training, upgrades, maintenance etc.

◦ Indirect Costs: Initial lost of productivity, time lost by users when sys is down etc.


Developing the Business CaseStep 6: Define Total Benefits of Ownership(TBO) – It must include all of the direct ongoing and indirect benefits associated with each proposed alternative◦ Increasing high-value work: Eg. spend less time on

paper work

◦ Improving accuracy and efficiency: Eg. Reducing errors, duplication etc.

◦ Improving decision-making: Eg. Providing timely & accurate info.

◦ Improving customer service: Eg. New products or services, faster or more reliable service etc.


Developing the Business CaseStep 7: Analyze Alternatives using financial models and scoring models◦ Financial models focus on either profitability and/or cash

flows. ◦ Net cash can be +ve or –ve & is calculated by

subtracting the cash outflows from the cash inflows.◦ Most commonly used cash flow models are as follows:

payback Break-evenReturn on investmentNet present valueScoring


Developing the Business Case1. Payback: It determines how long it will take

to recover the initial investmentPayback Period = Initial Investment

Net Cash Flow= $100,000 = 5 years

$20,000 It is useful for highlighting the risk of a particular investment because a riskier investment will have a longer payback period.It does not consider the time value of money or cash flows beyond the payback period.


Developing the Business Case2. Break Even: Like payback, this method attempts

to determine the point at which a project would begin to recoup its original investment.This method is useful if a certain no of transactions allow the original investment to be recovered.Riskier projects have higher break even pointEg. If you spent $100,000 to create a website to sell golf putters that you manufacture. How many golf putters you will have to sell to break even if you sell each putter for $30?



If you sell a golf putter for $30.00 and it costs $25.00 to make, you have a profit margin of $5.00:

Breakeven Point = Initial Investment / Net Profit Margin= $100,000 / $5.00= 20,000 units


Materials (putter head, shaft, grip, etc.) $12.00

Labor (0.5 hours at $9.00/hr) $ 4.50

Overhead (rent, insurance, utilities,taxes, etc.) $ 8.50

Total $25.00


3. Return on Investment: It provides a measure of the value expected or received from a particular alternative or project.

• It also acts as an indicator of a company’s financial performance

Project ROI =(total expected benefits – total expected costs)total expected costs

= ($115,000 - $100,000)$100,000

= 15%

Eg. Lottery ticket


Developing the Business Case4. Net Present Value: it focuses on time value

of money as there is a cost associated with time when it comes to money.

NPV does this by discounting streams of cash flows a particular alternative or project returns in the future so that we can determine if investing the time, money & resources is worth the wait.Only a project or alternative with +ve NPV should be considered.



Discount rate: It is used to discount the net cash flowsIt is also called as cutoff rate or hurdle rate because it basically defines the organization’s required rate of return.In short, hurdle rate is the minimum acceptable return on an investment.



NPV = -I0 + Σ (Net Cash Flow / (1 + r)t)Where:

I = Total Cost or Investment of the Projectr = discount ratet = time period


Year 0 Year 1 Year 2 Year 3 Year 4

Total Cash Inflows $0 $150,000 $200,000 $250,000 $300,000

Total Cash Outflows $200,000 $85,000 $125,000 $150,000 $200,000

Net Cash Flow ($200,000) $65,000 $75,000 $100,000 $100,000

Developing the Business CaseNet Present Value


Time Period Calculation Discounted Cash Flow

Year 0 ($200,000) ($200,000)

Year 1 $65,000/(1 + .08)1 $60,185

Year 2 $75,000/(1 + .08)2 $64,300

Year 3 $100,000/(1 + .08)3 $79,383

Year 4 $100,000/(1 + .08)4 $73,503

Net Present Value (NPV) $77,371


5. Scoring models: They provide a method for comparing alternatives or projects based on a weighted score.Scoring models also allow for quantifying intangible benefits or for different alternatives using multiple criteria.Total score= Σ wici◦ Where :wi=criterion weight, ci=criterion

score, 0<=wi<=1


n

i=1


Criterion Weight Alternative A

Alternative B

Alternative C

Financial

ROI 15% 2 4 10

Payback 10% 3 5 10

NPV 15% 2 4 10

Organizational

Alignment with strategic objectives 10% 3 5 8

Likelihood of achieving project’s MOV

10% 2 6 9

Project

Availability of skilled team members 5% 5 5 4

Maintainability 5% 4 6 7

Time to develop 5% 5 7 6

Risk 5% 3 5 5

External

Customer satisfaction 10% 2 4 9

Increased market share 10% 2 5 8

Total Score 100% 2.65 4.85 8.50

Notes: Risk scores have a reverse scale – i.e., higher scores for risk imply lower levels of risk


Step 8: Propose and Support the Recommendation: Once the alternatives have been identified & analyzed, the last step is to recommend one of the options.The business case should be formalized in a professional-looking report.


Business Case Template


Project Selection and ApprovalThe IT Project Selection Process: Initial screening & then forwarded to decision making committee. The Project Selection Decision◦ IT project must map to organization goals◦ IT project must provide verifiable MOV◦ Selection should be based on diverse measures

such astangible and intangible costs and benefitsvarious levels throughout the organization

Balanced Scorecard Approach introduced by Robert Kaplan & David Norton is widely used.


Balanced Scorecard Approach


Balanced Scorecard ApproachBalanced Scorecard Approach helps balance traditional financial measures with operational metrics across four different perspectives: finance, customer satisfaction, internal business processes & the organization’s ability to innovate & learnThe 4 perspectives provide a balanced approach in terms of tangible & intangible benefits and long & short term objectives as well as how each perspective’s desired outcomes & drivers impact the other perspectives.


Balanced Scorecard Approach

This approach is an overall performance mgmt system that is useful for selecting all projects in an organization, monitoring their progress & then evaluating their overall contribution.The MOV can be developed & reviewed in terms of how it supports the 4 balanced scorecard perspectives.


MOV and the Organization’s Scorecard


Reasons Balanced Scorecard Approach Might FailNonfinancial variables incorrectly identified as primary driversMetrics not properly definedGoals for improvements negotiated not based on requirementsNo systematic way to map high-level goalsReliance on trial and error as a methodologyNo quantitative linkage between nonfinanacial and expected financial results Chapter 2 Slides by Ms. Shree J. 66

IT governance

Governance focuses on the processes that coordinate & control an organization’s resources, actions & decisions to help prevent people from making bad investments, acting unethically or doing something illegal.The level of detail of IT governance will depend on the organization’s size & industry.


IT governance

4 IT governance best practices include:1. Identify strategic value of projects from

a stack of potential IT projects2. Top business managers should set IT

priorities3. Communicate priorities & progress

clearly4. Monitor projects regularly


Project Management Office

PMO is a way by which organizations are trying to create a Project mgmt culture & governance structure while improving process & controlThe role of PMO is to provide support & collect project related data while providing tools & technologies.


Project Management OfficeSeveral benefits of PMO are:

1. Pointing out minefields in project processes such as time & cost estimation

2. Enforcing priorities that keep project on track3. Coordinating cross-functional projects4. Providing a standardized way for all projects to be

planned, managed & reported5. Showing real value of projects by comparing

projected costs & benefits with actual results6. Coordinating more & larger projects than the

organization could handle in the past7. Allowing IT to support its requests for additional

staff or resourcesChapter 2 Slides by Ms. Shree J. 70

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