IS 556 Enterprise Project Management

Summer 2008

Instructor – Dr. Olayele Adelakun

Lecture 5

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2

Agenda

Review of last session material

Assignment 2 due

This week Bonham

Chapter 7

Bonham Chapters 1 & 3, skim Chapter 2

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Leach Chapter 10

Project-Risk Management

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Risk-Management Process

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Incorporating Risk Assessment into Pjt Process

Preventing (or reduce the likelihood of) the risk event (e.g., breaking the project into phases or researching uncertain project elements to improve certainty);

Transferring the risk (e.g., subcontracting);

Monitoring to determine if the chances of the risk are increasing (e.g., monitoring for precursors);

Reducing the consequences of the risk event, should the risk materialize;

Insuring against the risk event;

Mitigating the consequences if the event the risk materializes.

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Bonham Chapter 1

Introduction to IT Program Portfolio Management

project portfolio management office Executive staffs continue to be faced with

tornadoes of uncontrolled, high-risk projects. How can executives get a better aggregate view of

what is going on in their IT project portfolio? How can IT project teams get word of the various

methods for success? How can IT departments obtain control of ambitious

department heads starting technically redundant projects?

Many IT departments have recently adopted techniques that defense and the National Aeronautics and Space Administration (NASA) contractors have used for decades; techniques that are implemented by a project portfolio management office (PMO).

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project portfolio management office An established IT PMO that is actively supported at the executive

level can help solve problems with project auditing and initiative approval.

how can project audits be fair between projects if no common initiative or project methodology is followed by every business unit and PM?

How can the business units efficiently communicate ideas to upper management if no business case template has been developed?

By creating structure for projects and initiatives through business case templates and software development methodologies, projects can be tracked consistently.

The PMO can provide an auditing function that can prove health, risk, and valuation of all projects.

The PMO can also provide training curricula The PMO can have a clear window view into all corporate projects Can better manage human resources and assets across projects. IT architecture group dictate new technical direction for the company By establishing an architecture branch, the PMO can ensure that new

projects leverage existing assets and avoid duplicate, siloed implementations.

Finally, by being aware of any inter-project dependencies the PMO can have seemingly uncoupled projects react appropriately to shifts in corporate strategies.

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9

Ch 1 – Introduction to PPM Project Portfolio Management

Modern Portfolio Theory (MPT) Financial Investments Project Investments

IT Project Management Variable Schedule Variable Cost/Budget Variable Functionality/Scope/Quality Risk

Portfolio Selection Maximization Strategic Alignment Balance Resource Allocation

The IT PMO PMO Rollout Government Regulations

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Modern Portfolio Theory (MPT)

Financial Investments 4 goals guide most financial portfolios

Maximize Return for Given Risk Minimize Risk for Given Return Avoid high correlation Are tailored to investor’s particular strategy

This chart shows how the required return correlates with the risk premium (theextra amount required to cover the riskier investment ).

Fig. 1.1

Risk and rate of return are the most common metrics used in prioritizing a financial portfolio

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Modern Portfolio Theory (MPT)

Financial Investments Risk Types making up Risk Premium

Maturity – time kept raises risk

Default- likely that bond dumps

Seniority- rights to cash

Marketability- ease in selling

1.2

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Modern Portfolio Theory (MPT)

Project Investments

1.3: Risks for project investments. Greater complexity than financial investments

Core Project Goal -– Stkehdrs realize expectations for money, assets, & HR invested..

Types of Project Risk

Market – change in business conditions

Organizational – user resistance; how well the stakeholders embrace some new IT solution to a business problem.

Technical – bleeding edge innovations; Designs, implementations, interfaces, verification and Q/A, maintenance, specification ambiguity, technical uncertainty, technical obsolescence, and bleeding-edge technology are all examples of technical risks

Project – time & cost overruns

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Differences between Financial/Project Investments

Financial Higher financial risk

correlates with potential higher return

Aim is to increase risk premium

Project Higher project risk does

NOT correlate with potential higher return

Aim is decrease surprises by meeting time/cost schedules with functionality

Risk mitigated more effectively through PMO

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IT Project Management

Variable Schedulecan impact ROI if slippage occurstime buffers used

Variable Cost/Budgetunanticipated costscost buffers used

Variable Functionality/Scope/Qualityoften to meet market forces

Risk Central to PM technical riskcommercial riskproject/process riskorganizational risk

1.4

CLASSIC

PMBOK

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Additive Nature of Risks thru Project Life

Note: By layering the risksyou can see how risks dodecrease overall but some recycle throughout.

Using PM tools such as COCOMO* can help in calculating what the risk is.

PMOs require a standardized, objective method for calc of risks.

ALSO RISK is involved in the Project Selection process.

*COnstructive COst MOdel

1.5

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Portfolio Selection & Prioritization Criteria

Project portfolio selection is the periodic activity involved in selecting a portfolio, from available project proposals and projects currently underway,

that meets the organization’s stated objectives in a desirable manner without exceeding available resources or violating other constraints.

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Portfolio Selection & Prioritization Criteria

MaximizationMaximization relies on PMO’s expectations management expectations management Scope mgt – accepting scope changes won’t reduce success

probability Rollout mktg – reject of scope changes won’t reduce stkhldr

enthusiasm Balance Balance of capabilitycapability & need need defines achievable best by PMO Resource Allocation Resource Allocation between projects – duty of the PMO Strategic Alignment >>Strategic Alignment >>

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Strategic AlignmentBuilding & Maintaining the projectportfolio for strategic alignment

1. Resources c/be allocated among business units (BUs) also known as strategic business units (SBUs) through centralized corporate planning.

2. Corporate strategy c/evolve by developing BU level strategies —similar to the Balanced Scorecard approach.

3 BU c/ implement its strategies for growth or productivity gains by developing detailed plans. C/be in the form of a portfolio of initiatives (or business cases) for projects.

4. Periodic review process for all funded initiatives (projects) c/be established

5. Then, once the portfolio is determined, can then be maintained through “decision-making, prioritization, review,

realignment, and reprioritization”

1.7

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Categorizing Resources for IT projects

1.8

This lets PMO know what resources are available for projectsThis lets PMO know what resources are available for projectsby getting them into subsetsby getting them into subsets

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Selection & Prioritization (S&P) Goals – Tasks

Mapping S&P criteria fromMPT to PPM via tasks

1.9

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S&P using PPM via tasks & Project Support

Mapping S&P criteria fromMPT to PPM via tasks withproject support1.10

‘‘Resource Balancing’Resource Balancing’now is ‘AARK MgtAARK Mgt’ A=Architecture A=Asset R=(human) Resources K=Knowledge

This leads to the PMOfor handling the PPM

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IT PMO for handling initiatives(proposals)

1.11 Corporate vs.IT PMO handling ofbusiness initiatives

IT PMO has its strategylean to productivity orientedprojects – IT used more to improve efficiency ofproducing products – rarelydoes IT create products (growth)

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PMO’s Project Types

The sacred cow. The project is “sacred” in the sense that it will be maintained until successfully concluded or until the boss, personally, recognizes the idea as a failure and terminates it. Sony refers to these types of projects as “skunk works” projects that circumvent the formal project approval process.

The operating necessity. It is needed to keep the business running.

The competitive necessity. It is needed to keep the business

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IT PMO Project Prioritization

1.12 IT PMO Building Blocks based on 4 IT PMO goals

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IT PMO Rollout

1.13 Acquiring organizationalsupport for the IT PMO Building Blocks

• Takes same expectation Takes same expectation management as a projectmanagement as a projectrolloutrollout• Thus, segmented rollout Thus, segmented rollout to gain organizational to gain organizational support of the IT PMO atsupport of the IT PMO atthe various levels:the various levels:

• Top ManagementTop Management• Middle Management Middle Management

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Bonham Chapter 3

Portfolio Flexibility

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Bonham Ch 3 – Portfolio Flexibility

Flexibility

Initiative Methodologies Phase 1 – Understanding the Problem & Its

Context Phase 2 – Risk/Option/Cost Analysis Phase 3 – Presentation and Project Preparation Phase 4 – Metric Mapping

Project Methodologies Pitfalls Audit Points

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Flexibility

3.13.1

Single release Single release

Iterative releases:Iterative releases: higher quality higher quality higher risk mitigation higher risk mitigation quicker environment quicker environment response response

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Goals / Phases of Business Initiative Methodology

Phase 1 Understand the Problem and Its

Context

  Specify Objective

  Identify Stakeholders

  Analyze Problem

Phase 2 Risk/Option/Costs Analysis

  Risk Analysis

  Options Analysis

  Cost/Benefits Analysis

Phase 3 Presentation and Project Prep

  Document the Case

  Make the Case

  Project Prep

Phase 4 Project Auditing

  Ongoing Reviews

  Metric Mapping

Here we see how the PMOHere we see how the PMOcan help business initiatives can help business initiatives (proposals) go through the(proposals) go through thevarious phases.various phases.

----each PMO s/tailor theireach PMO s/tailor theirbus initiative (proposal) bus initiative (proposal) processprocessto the organization.to the organization.

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The Proposal Phases “Blown Up”

3.2

1-Understand1-UnderstandProblem & ContextProblem & Context

2-Risk/Option/Cost2-Risk/Option/Costanalysisanalysis

3-Presentation 3-Presentation Project PreparationProject Preparation

4-Metric4-MetricMappingMapping

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Phase 1 -- Initiative (Proposal) Review Flow with PMO

Preliminary Initiative PlanPreliminary Initiative Plan• WHAT will be doneWHAT will be done• WHO is sponsorWHO is sponsor• Link to org directionLink to org direction• Link to business goalsLink to business goals• Top-level descriptionTop-level description

•CostsCosts•BenefitsBenefits•RisksRisks

PMO gap teamsPMO gap teamsoffer risks, does offer risks, does not reject ideasnot reject ideas

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Phase 2 -- Using Cost/Benefit Analysis – Phase 2 -- Using Cost/Benefit Analysis – Decision Tree BuiltDecision Tree Built

3.43.4

NPV= Net Present ValueNPV= Net Present ValuePI = Profit Index= PV/CostsPI = Profit Index= PV/CostsIRR= Internal Rate of ReturnIRR= Internal Rate of Return

Real Options Analysis of Multiphased Project

K = 1000sM = 1000000s

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Usefulness of the Decision Tree

Gives a more realistic and sophisticated assessments of the possibilities that the project will or will not deliver benefits.

It can show that after a shaky start in phase 1, it can go on to generate a 1.3 PI (Profit Index)

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Phase 3 – Presentation & Project Prep

3.53.5

Linking Elements Of Business Initiative To Business CaseLinking Elements Of Business Initiative To Business Case

This template canThis template canbe for ALL IT-basedbe for ALL IT-basedbusiness initiativesbusiness initiatives

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Sponsor Activities While Waiting for Financing

Project PlanningProject Planning – complete high-level Gantt charts and work breakdown structures

StaffingStaffing – recruit key personnel and prepare transfer paperwork

Stakeholder Committee FormationStakeholder Committee Formation – sponsor starts this committee to ensure organization support

Equipment & Tool AcquisitionEquipment & Tool Acquisition – submit requests for items with long lead times

FacilitiesFacilities – find and negotiate for items needs Operational conceptsOperational concepts – develop communication plans

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Phase 4 – Metric Mapping

By adopting a suite of standard project methodologies, PMO makes sure all projects use consistent metrics to trace back to business case on: Project cost Health Risk

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Virtual IT PMO

Methodology Management Teams

The PMO is carefulto present templatesnot rigid methods

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Characteristics of PMO methodologies

Flexible to: Strategic long-term projects (e.g. ERP) Tactical quick-implementation projects

Should have: Breadth. Must be transferable across project types. Depth. Must show sufficient detail for each stage/phase Clarity. Must be easily understood. Impact. Must allow for measurable results

Pitfalls to avoid: Over-enforcement of project methodologies Strained attempts to fit the mold of a dictated methodology Setting up methods that constrain experienced PMs

and too loose for new PMs

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Methodologies and Audit Points

To make sure project deliverables end up supporting org mission – add Audit Points to chosen methodology at key points: 1. Initiation 2. Execution start 3. Testing start 4. Completion

4 Methodologies that PMO often use: RUP (Rational Unified Process from IBM) Spiral (a classic iteration process) Extreme Programming PMBOK from PMI

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RUP (Rational Unified Process) with Audit Points

3.73.7

From IBM

Project workloads over time with PMO-specific audit points

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Spiral with Audit Points

3.83.8

Spiral methodology with PMO-Specificaudit points

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Extreme Programming with audit points

3.93.9

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PMBOK with audit points

3.103.10

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Next Session

Bonham Chapters 4,7,9

PMO as Cost Center Program Management Core Competencies Cases