Transcript Managing Systems Integration Projects/Project Management

Setting Goals, Securing
Commitment and Project
Justification
Project Charter & Business Case
Kathy S. Schwaig
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Conceptualizing and Initializing
the IT Project
Conceptualize and Initiate
Define Overall goal of the project. “How do we
know how to get somewhere if we don’t know
where we are going” Kerzner
Alternatives for reaching goal
Costs, benefits, feasibility, risk
Goals and analysis of alternatives are delivered
in a business cases
Sr. Management/Steering Committee makes a
decision/selection
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Project Scope Management
Includes the process required to
ensure that the project includes all
the required work and all the work
required. What are the
product/deliverables and what are
the processes required to deliver the
products
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Steps in Scope Management
Step 1
Project Selection:
On which projects do we work? Review organization’s
strategic plan, focus on broad organizational needs,
financial analysis, scoring models. A business case
documents a lot of this information.
Step 2
Project Charter
Formally recognizes the existences of a
project…signed by key stakeholders and acknowledges
agreement on need and intent of project
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Steps in Scope Management
Step 3
Work Breakdown Structure
Output of scope definition process.
Outcome oriented analysis of the work
involved in a project that defines the total
scope of the project. Basis for planning and
managing project schedules, costs, and
changes. Good WBS’s are hard to create!
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Why Write a Business Case for
Pursuing a Project?
Most projects require some form of justification
to secure resources and funding
The discipline of writing a business case forces us
to:
make tacit assumptions explicit
provides basis for allocating capital
document the reasons for pursuing a project
The business case serves as a communication tool
and helps to define what the project is (and is not)
at its inception
An analysis of the organizational value,
feasibility, costs, benefits, and risks of
several proposed alternatives or options
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Business Case
“Like an attorney, the business case
developer has a large degree of
latitude to structure arguments,
select or ignore evidence, and deliver
the final presentation. Outcome
depends on the ability to use
compelling facts and logic in order to
influence an individual or group with
decision-making authority.”
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Contents of a Business Case
Describe the problem
Impacts/effects of problem
Identify who/what is affected
Impact of ignoring the problem
Desired outcome
Alternatives
Define feasibility (economic, technological, organizational) and
assess risk
Value/benefit of desired outcome
Total cost of ownership
Total benefits of ownership
Interface integration/compatibility issues
Uncertainties/unknowns
Key assumptions
Constraints
Background and supporting information
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Three Types of Arguments to
Develop a Business Case
Arguments of Facts
“The system will eliminate the need for hiring two
positions for an annual savings of $100K”
Justify using hard data, quantitative, structured
feasibility assessment
Arguments of Faith
“IS is infrastructure. We need it to support our growth
and stability”
Justify by vision. Investment X will lead to benefit Y
Arguments of Fear
“If we don’t do this we may be eaten alive by our
competition”
Justify by perception of events
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Business Decision
Level I Business Decision (Go/No Go)
Status Quo or Manual Solution vs. Build and or
Buy (Buy #1 or Buy #2 or Buy #3)
cost-benefit analysis & risk analysis
Level II Business Decision (Build/Buy)
Level III Business Decision (Vendor 1,
Vendor 2 or Vendor 3)
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Level 1 Business Decision
(Go/No Go)
Cost-benefit analysis = comparison of
expected costs to expected benefits to
determine if a computerized solution-irrespective of build/buy or particular
vendor decisions--makes sense.
Spreadsheets are often used as
computerized tools for this analysis!!!
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Costs & Benefits
Costs
Hardware
Telecommunications
Software
Services
Personnel
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Costs & Benefits
Benefits
Tangible (i.e. cost savings):
increased productivity; lower operational
costs; reduced work force; lower computer
expenses; lower clerical & professional costs;
reduced rate of growth in expenses; reduced
facility costs
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Cost & Benefits
Benefits
Intangible
improved asset utilization; improved resource control;
improved organizational planning; increased
organizational flexibility; more timely information;
more information; increased organizational learning;
legal requirements attained; enhanced employee
goodwill; increased job satisfaction; improved decision
making; improved operations; higher client
satisfaction; better corporate image
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Level I Business Decision
(Go/NoGo)
Risk Analysis - analysis of the uncertainties in
going ahead or not going ahead with a change
Risks included general factors such as the level of
experience of the IS dept. in this type of system, the
fit with the organizational culture, & the stability of
the technology to deliver as required.
They also include specific factors such as those in the
level II business decisions
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Level II Business Decision
Build/Buy
If a software investment is involved,
then…comparative software cost-benefit
analysis
compare the financials on a decision to
insource versus a decision to outsource
“Buy” estimates, which may be assembled by
systems integration managers from vendor
responses to an RFI (request for
information), are highly preliminary
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Level II Business Decision
Build/Buy
Financial argument
The argument is whether a choice to build or buy
results in a greater production cost advantage. This
is the “economies of scale” issue in the outsourcing
decision
Non-Financial argument
The argument is whether a choice to build or buy
makes sense in the light of the other major questions
related to outsourcing, (core competency, expertise)
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Level II Business Decision
Build/Buy
“Build” risks refer to the uncertainty that the
in-house project will be completed to the user’s
satisfaction and that the estimated timelines
and costs are reasonably accurate
“Buy” risks in this situation refer to the
uncertainties that the vendor software is real
(not vaporware), that it will perform as
advertised, that the vendor will not go out of
business during the period that the software is
in use, etc..
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Level I & II Business Decision
Go/No Go and Build/Buy
In situations when an already existing
system is being replaced, benefits
include the expenses that will be avoided
by scrapping the old system plus the
additional benefits realized by
integrating a wholly new system.
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Managing the Business Decision
to Invest in IT
Analytical Tools Commonly Used
Payback Method
Accounting Rate of Return
Cost-benefit Ratio
Net Present Value (NPV)
Profitability Index
Internal Rate of Return
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Payback Method
A measure of the time required to
payback the initial investment on a
project
1st Year investment
Payback = Annual net cash flows
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Accounting Rate of Return
Calculation of the rate of return from an
investment by adjusting cash inflows
produced by the investment for
depreciation. Approximates the accounting
income earned by the investment.
ROI =
Net Benefit
Total Initial Investment
where
Total Benefits - Total Cost - Depreciation
Net Benefit =
Useful Life
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Cost-Benefit Ratio
A method for calculating the returns
from a capital expenditure. Ex. A
cost/benefit ratio of 1.42 indicates
that benefits are 1.42 times greater
Total Benefits
=
than
cost.
Cost -Benefit
Total Costs
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Net Present Value (NPV)
Amount of money an investment is
worth, taking into account its cost,
earnings and the time value of money
compare the cost of the investment (cash
outflow in year 0) with net cash inflows. Any
dollars received in the future must be
discounted by some appropriate % rate
(prevailing interest rate or cost of capital)
NPV = PV of expected cash flows - Initial Investment Cost
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Profitability Index
Used to compare the profitability of
alternative investments
PV of Cash Inflows
Profitability Index
=
Investment
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Internal Rate of Return
Rate of return or profit an investment is
expected to earn; the discount (interest)
rate that will equate to PV of the project’s
future cash flows to the initial cost of the
project.
i.e. that rate which will result in PV - 1st year
investment = 0
variation of NPV
considers the time value of money
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Level III Business Decision
Buy #1 vs. Buy #2 vs. Buy 3
RFP process or small $ investment
data gathering
Compare alternatives (detailed) analysis
thorough analysis of proposals and responses
to RFPs
risk analysis
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Level III Business Decision
Buy#1 vs. Buy #2 vs. Buy #3 - Risk
Analysis
similar to that of business level II except that
the vendor’s bids are more precise
to include risk factors in the overall
assessment, a single index value for all risks
taken together should be created
this risk index value can then be considered in a
scoring model
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Level III Business Decision
The result?
Vendor bids rejected and some
accepted.
preparation of contract
negotiation of contract
signing/awarding of contract
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What is a Project Charter?
A project charter is a mission statement that
clearly defines the project
The chartering process should help build
commitment to the project objectives
The process of developing the project charter
is as important as the charter itself
Project chartering needs to be a group activity
because it will help to build the project team
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Purpose of a Project Charter
To establish a shared understanding
of project scope and objectives
To gain commitment to the project
To communicate objectives to those
outside the project team
To provide measurable goals and
objectives
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Characteristics of a Good
Project Charter
Should be clear
Should be concise—no more than 3
pages
Should be developed by consensus
Should contain realistic/achievable
objectives
Should contain an assessment of
project risk
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Contents of a Good Project
Charter
Short description of end-product and
scope definition
Primary objective
Secondary objective(s)
Completion date (target or constraint)
Total cost (target or constraint)
Key constraints and assumptions
Key project personnel
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What can happen if you don’t
have a good project charter?
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