Week 3 - Sheets & Articles Flashcards
What is a business case?
An analysis of the organizational value, feasibility, costs, benefits, and risks of the project plan. Must be complete, systematic, and objective.
What is the goal of a business case?
To provide management with the information necessary to decide whether a project should receive funding (or go to the next phase).
What is the MOV?
Measurable Organizational Value.
The conceptualization of the purpose/goal of the project.
What are the 8 steps to developing a business case?
- Define MOV
- Form a cross-functional team
- Identify alternatives
- Define feasibility & assess risk
- Define TCO
- Define TBO
- Analyze alternatives
- Propose and support the recommendation
What are the 6 steps to defining the MOV?
- Identify desired area of impact
- Identify desired organizational value (better, faster, or cheaper?)
- Develop appropriate metric (increase/decrease in $, % change, numeric values)
- Set a time frame for achieving the MOV
- Verify & get agreement from stakeholders
- Summarize MOV clearly & concisely
What are the 4 attributes of a good MOV?
SMART:
- Be measurable
- Provide value
- Be agreed upon
- Be verifiable
Name potential areas of impact for defining an MOV.
Customer (new products, services), strategic, financial, operational, social
Why do you need to form a cross-functional team to develop a business case (3)?
- It assures credibility. different POV’s, right people, asking the right questions
- It assures alignment with organizational goals. How will the project help the org. achieve its overall mission and strategy.
- Gains access to real costs. More realistic estimates, e.g. salaries, overhead, accounting, regulations etc.
What are the advantages of forming a cross-functional team to develop a business case?
- Ownership: better chance of reducing political problems.
- Easier agreement when defending the case
- Bridge building: effective tool for handling critics of the business case
What are the characteristics of the people within a cross-functional business case team?
They may have:
- Technical skills
- Organizational knowledge (business)
- Interpersonal skills
Name a method for identifying alternative solutions when developing a business case.
Analytical Hierarchy Planning (AHP), or decision theory.
There are 4 types of feasibility in the book. Name them.
- Economic feasibility
- Technical feasibility
- Organizational feasibility
- Other feasibilities (dependent on context & organization)
What is the TCO?
Total Cost of Ownership.
Total cost of acquiring, developing, maintaining, and supporting the product or application system over its useful life (PLM).
What are the 3 types of costs in a TCO?
- Direct or up-front costs; initial purchase of hard- & software, equipment, consultant fees etc…
- Ongoing costs; support, salaries, upgrades, maintenance…
- Indirect costs: initial loss of productivity, downtime costs, cost of learning the new system…
What is the TBO?
Total Benefit of Ownership.
Includes all direct, ongoing and indirect benefits associated with each proposed alternative. Over the course of its useful life.
How should you quantify intangible benefits for the TBO?
By linking them directly to tangible benefits.
E.g., the cuts on paper-use and printing when moving to a digital infrastructure (tool).
When should you replace an old system?
When the costs of maintaining the old system exceed the expected costs of the new system to implement.
How is Payback calculated?
Payback (period) = (initial) investment / cash flow
Where cash flow = benefits - costs, in a period of time (e.g. a year)
100,000 / 20,000 = 5 years when initial investment is paid back.
Why is payback an incomplete way of comparing alternative solutions?
It does not consider the time value of money or cash flows beyond this period.
It is still useful for highlighting the risk level of an investment (longer period = greater risk)
What is the breakeven point?
Similar to payback, but now calculating how many units you have to sell in order to break even.
How is ROI calculated?
Return of investment (%) = (expected benefits - expected costs) / expected costs
In short: expected value / expected costs.
What are the 2 assumptions for quantitative measurement?
- It is possible to predict costs or benefits accurately
2. Benefits and costs arise as a direct result of the project
What is the NPV?
Net Present Value.
It focuses on the time value of money; a project or alternative should only be considered if the NPV is positive.
What is the discount rate?
The organization’s required rate of return. The minimum return a company would expect from a project. Set by management usually.
It depicts the depreciation of value over time.
What is the NPV formula?
-(initial investment) + SUM(net cash flow / (1 + discount rate)^time period
Give examples of intangible benefits.
- Improved data quality
- Better decisions
- Improved customer satisfaction
- Easier to innovate
What are hidden costs?
Either:
- Known costs, but budgeted too low (bad estimate)
- Unknown costs, not budgeted at all
Why do costs remain hidden?
Because the business case is used to select a project and they want to “boost” the benefits and “hide” costs so they may have a better chance at winning.
Indirect costs are really unknown.
What is a portfolio?
A set of projects with varying levels of risk, technology, size, and purpose, in order to meet various organizational objectives.
Bacon (1992) researched the use of decision criteria in selecting IS/technology investments. What are the two main concerns?
- The process of how the investment decision was made
- The criteria that answer: why was the investment decision made? Financial and non-financial justification.
What are 2 of the most common decision methods, according to Bacon (1992)?
NPV and Internal rate of return (IRR)
Explain organizational learning, in context of the paper by Bacon (1992) about decision criteria.
Organizations should learn from previous projects & compare the historical estimates with the current project(s).
What is the IRR and how can you find it?
Internal rate of return, used to estimate the profitability of potential investments.
It is discount rate in the NPV formula, so that NPV = 0.
What are the fundamental (cost) estimation questions?
- How much effort (man-hour) is required to complete a project?
- How much calendar time is needed to complete a project?
- What is the total cost of a project?
Explain scope grope, creep and leap.
Grope: inability to define the scope
Creep: tendency to increase features (expand scope)
Leap: fundamental change in project scope
Explain guesstimating.
Guess at the estimates, quick and easy but often not a good way of deriving schedule and budget.
“picking random numbers”
Explain Delphi techniques.
Experts needed. Each makes an estimate and then all results are compared. Anonymous, multi-rounds. Experts are unknown to eachother.
Explain time boxing.
Focus on only the most important features.
Determine how much time is needed for each task.
Explain top-down estimating.
How long it SHOULD take, SHOULD cost, from a top management perspective.
Explain bottom-up estimating.
Project managers make cost estimates and you add them together to determine the total duration of the project. Based on experience of PM and teams.
Briefly explain the concept of planning poker, in steps.
- Gather a group of people who do the work (local expertise) and a moderator or product owner.
- Give a list of user stories
- Experts ask questions about the user stories
- Each player individually estimates the user story with one of the cards (0, 1/2, 1, 2, 3, 5…), the story points.
- Players show their “hands” simultaneously
- If estimates differ (greatly), the highest & lowest cards explain their estimate.
What is the difference between complicated and complex?
Complicated implies being difficult to understand but with time and effort, ultimately knowable;
Complex describes the interactions between a large number of entities
What is analogous estimation?
Developing estimates based on one’s opinion that there is a significant similarity between the current project and others. Use historic information as a basis for estimation.
What does compositionality mean?
Breaking systems into smaller components, so they can be better understood and analyzed.
There is some criticism on the use of FPA. Explain.
- FPA is not universally applicable to all types of software, like real-time software
- The formulas are difficult to interpret
- The reasoning behind weights is not always clear
- Largely manual process
