Chapter 2 Flashcards
Why PM’s Need to Understand Strategy
PM’s must respond to changes with appropriate decisions about future projects and adjustments to current projects.
PM’s who understand their organization’s strategy can become effective advocates of projects aligned with the firm’s mission.
What if They Don’t Understand?
Mistakes caused by not understanding the role of projects in accomplishing strategy:
Focusing on problems or solutions with low strategic priority.
Focusing on the immediate customer rather than the whole market place and value chain.
Overemphasizing technology that results in projects that pursue exotic technology that does not fit the strategy or customer need
Trying to solve customer issues with a product or service rather than focusing on the 20% with 80% of the value (Pareto’s Law).
Engaging in a never-ending search for perfection only the project team really cares about.
Strategic Management
Requires every project to be clearly linked to strategy.
Provides theme and focus of firm’s future direction.
Responding to changes in the external environment—environmental scanning
Allocating scarce resources of the firm to improve its competitive position—internal responses to new programs
Requires strong links among mission, goals, objectives, strategy, and implementation.
4 Activities of the Strategic Management Process
Review and define the organizational mission
Set long-range goals and objectives
Analyze and formulate strategies to reach objectives
Implement strategies through projects
Characteristics of Objectives
SMART
S Specific - Be specific in targeting an objective
M Measurable - Establish a measurable indicator(s) of progress
A Assignable - Make the objective assignable to one person for completion
R Realistic - State what can realistically be done with available resources
T Time-related – When the objective can be achieved; duration
Project Portfolio Management: The Need for a Strong Project Priority System
The Implementation Gap
Organization Politics
Resource Conflicts and Multitasking
The Implementation Gap
The lack of understanding and consensus on strategy among top management and middle-level (functional) managers who independently implement the strategy.
Organization Politics
Project selection is based on the persuasiveness and power of people advocating the projects.
Resource Conflicts and Multitasking
Multi-project environment creates interdependency relationships of shared resources which results in the starting, stopping, and restarting projects.
Benefits of Project Portfolio Management
Builds discipline into the project selection process.
Links project selection to strategic metrics.
Prioritizes project proposals across a common set of criteria, rather than on politics or emotion.
Allocates resources to projects that align with strategic direction.
Balances risk across all projects.
Justifies killing projects that do not support strategy.
Improves communication and supports agreement on project goals.
Design of a project portfolio system:
Classification of a project Selection criteria depending upon classification Sources of proposals Evaluating proposals Managing the portfolio of projects.
Portfolio of Projects by Type
Compliance (must do) projects
Strategic projects
Operational project
Selection Criteria
Financial models: payback, net present value (NPV)
Non-financial models: projects of strategic importance to the firm.
Multi-Weighted Scoring Models
Use several weighted selection criteria to evaluate project proposals.
A Portfolio Management System:
Selection Criteria
Multi-Weighted Scoring Models
The Payback Model
Measures the time the project will take to recover the project investment.
Uses more desirable shorter paybacks.
Emphasizes cash flows, a key factor in business.
Limitations of Payback
Ignores the time value of money.
Assumes cash inflows for the investment period (and not beyond).
Does not consider profitability.
The Net Present Value (NPV) model
Uses management’s minimum desired rate-of-return (discount rate) to compute the present value of all net cash inflows.
Positive NPV: project meets minimum desired rate of return and is eligible for further consideration.
Negative NPV: project is rejected.
Financial Models
The Net Present Value (NPV) model
The Payback Model
Nonfinancial Strategic Criteria
If profit wasn’t the original goal, why else might Apple put so much into making the iPod?
To capture larger market share
To make it difficult for competitors to enter the market
To develop an enabler product, which by its introduction will increase sales in more profitable products
To develop core technology that will be used in next-generation products
To capture larger market share
To make it difficult for competitors to enter the market
Nonfinancial Strategic Criteria (2)
To develop an enabler product, which by its introduction will increase sales in more profitable products
To develop core technology that will be used in next-generation products
To develop an enabler product, which by its introduction will increase sales in more profitable products
To develop core technology that will be used in next-generation products
Multi-Criteria Selection Models
Checklist Model
Uses a list of questions to review potential projects and to determine their acceptance or rejection.
Fails to answer the relative importance or value of a potential project and doesn’t to allow for comparison with other potential projects.
Multi-Weighted Scoring Model
Uses several weighted qualitative and/or quantitative selection criteria to evaluate project proposals.
Allows for comparison of projects with other potential projects
Applying a Selection Model
Project Classification
Deciding how well a strategic or operations project fits the organization’s strategy.
Selecting a Model
Applying a weighted scoring model to align projects closer with the organization’s strategic goals.
Reduces the number of wasteful projects
Helps identify proper goals for projects
Helps everyone involved understand how and why a project is selected
Project Proposals
Sources and Solicitation of Project Proposals
Within the organization
Request for proposal (RFP) from external sources (contractors and vendors)
Ranking Proposals and Selection of Projects
Prioritizing requires discipline, accountability, responsibility, constraints, reduced flexibility, and loss of power.
Managing the Portfolio
Senior management input
The priority team (Project Office/PO) responsibilities
Managing the Portfolio System
Senior Management Input
Provide guidance in selecting criteria that are aligned with the organization’s strategic goals
Decide how to balance available resources among current projects
The Governance Team Responsibilities
Publish the priority of every project
Ensure that the project selection process is open and free of power politics.
Reassess the organization’s goals and priorities
Evaluate the progress of current projects
Balancing the Portfolio for Risks and Types of Projects
Bread and butter projects
Pearls
Oysters
White Elephants
Bread and butter projects
Involve evolutionary improvements to current products and services.
Pearls
Represent revolutionary commercial opportunities using proven technical advances.
Oysters
Involve technological breakthroughs with high commercial payoffs.
White Elephants
Showed promise at one time but are no longer viable.
