Ch. 2 Strategic Management and Project SelectionCh. 2.0: Overview of PS ProcessCh. 2.1: Project Management Maturity LevelsCh 2.2: PS ModelsCh. 2.2: Criteria for Project Selection modelsCh. 2.3: Nature of PS models: CaveatsCh. 2.3: Nature of PS Models: MethodologyCh 2.3: Project Evaluation Factors (PEFs)Ch 2.4: Types of PS Models: NonnumericCh 2.4: Numeric PS Models: Profit / ProfitabilityCh 2.4: Numeric PS Models: ScoringCh 2.4: Choosing the PS ModelCh 2.5: Management of Risk: TerminologyCh 2.5: Areas of UncertaintyCh 2.6: Risk Analysis Crystal Ball®2000 SoftwareCh 2.6: Risk Analysis: Crystal Ball®2000 SoftwareSlide 17Slide 18Ch. 2.6: Window-of-Opportunity AnalysisCh. 2.6: Problems Affecting Data Used in PS ModelsCh 2.7: Project Portfolio Process (PPP)Ch 2.8: Project Proposal: ContentCh 2.8: Project Proposal: Cover letter & Executive summaryCh 2.8: Project Proposal: Past Experience of Project TeamCh 2.8: Project Proposal: Technical ApproachCh 2.8: Project Proposal: Implementation PlanCh 2.8: Project Proposal: Plan for Administration and Logistic SupportCh. 2 Strategic Managementand Project SelectionMaturity of Project ManagementCriteria for PS ModelsNature of PS ModelsTypes of PS ModelsUncertainty Analysis and Risk ManagementInformation Base for PS ModelsProject Portfolio Process (PPP)Project ProposalCh. 2.0: Overview of PS ProcessProject Management Office (PMO): Aligning corporate needs and project goalsProject Selection: Chose candidate project using Evaluation CriteriaDealing with Uncertainty: Risk AnalysisStrategically selecting best Projects: Project Portfolio Process (PPP)Locking up the deal: Writing a Project ProposalCh. 2.1: Project Management Maturity LevelsAd-hoc (essentially disorganized)Abbreviated (some processes exist)Organized (standardized processes)Managed (measured processes)Adaptive (continuous improvement)Ch 2.2: PS ModelsIdealized view of realityRepresenting the STRUCTURE of the problem, not the detailDeterministic or stochasticCh. 2.2: Criteria for Project Selection modelsRealism (technical-, resource-, market-risk)Capability (adequately sophisticated)Flexibility (valid results over large domain)Ease of Use (no expert needed to run model)Cost (much less than project benefit)Easy Computerization (use standard software)Ch. 2.3: Nature of PS models:CaveatsProject decisions are made by PM --- NOT by PS model!A PS model APPROXIMATES, but does NOT DUPLICATE reality!Ch. 2.3: Nature of PS Models:MethodologyStart with detailed list of firm’s goalsCreate list of project evaluation factors (PEF’s)Weigh every element in PEF listCompute an overall score for project based on weighted PEF’sSelect project that has the closest alignment with firm’s goalsCh 2.3: Project Evaluation Factors (PEFs)Production FactorsMarketing FactorsFinancial FactorsPersonnel FactorsAdministrative and Misc. FactorsCh 2.4: Types of PS Models:NonnumericSacred CowOperating NecessityCompetitive NecessityProduct Line ExtensionComparative Benefit ModelCh 2.4: Numeric PS Models:Profit / ProfitabilityPayback Period (PB)Average Rate of ReturnDiscounted Cash Flow (NPV)Internal Rate of ReturnProfitability IndexOther Profitability ModelsCh 2.4: Numeric PS Models:ScoringUnweighted 0-1 Factor ModelUnweighted Factor Scoring ModelWeighted Factor Scoring ModelConstrained Weighted Factor Scoring ModelS = ∑(x)S = ∑(s)S = ∑(s·w)S = ∑(s·w) ∏(c)Ch 2.4: Choosing the PS ModelDependent on wishes and philosophy of management80% of Fortune 500 firms choose “nonnumeric” PS modelsFirms with outside funding often chose scoring PS modelsFirms without outside funding often chose profit / profitability PS modelsCh 2.5: Management of Risk:TerminologyRisk: Decision based on complete information about the probability of each possible outcome.Uncertainty: Decision based on incomplete or insufficient data.Game: Decision based under conditions of conflict.Ch 2.5: Areas of UncertaintyProject timing & expected cash flow. Direct outcome of project, i.e. what exactly will the project accomplishSide effects and unforeseen consequences of projectCh 2.6: Risk AnalysisCrystal Ball®2000 Software1) Start with estimated risk profile for all key parameters of project2) Use Crystal Ball®, an EXCEL® plug in, to represent decision by statistical model3) Repeat many times to get a statistical distribution of all possible outcomesCh 2.6: Risk Analysis: Crystal Ball®2000 Software1) Input of Cash Flow parameter from Psycho Ceramic exampleCh 2.6: Risk Analysis: Crystal Ball®2000 Software2) Select distribution parameter(Triangular for this example)Ch 2.6: Risk Analysis: Crystal Ball®2000 Software3) Output, 1000 Monte Carlo Runs(example:Average Project NPV $10,821)Ch. 2.6: Window-of-Opportunity AnalysisEstimate IN ADVANCE economic impact of innovation before R&D is undertakenSet up a baseline of current process as the sum of all current sub processesCompute cost / performance of new innovation as a multiple of each sub process in the baseline systemCh. 2.6: Problems Affecting Data Used in PS ModelsAccounting: arbitrary assignment of overhead costs, linear cost and revenue forecastsMeasurements: (subjective vs. objective), (quantitative vs. qualitative), (reliable vs. unreliable), (valid vs. invalid)Technology shock: New technology has to overcome initial resistance threshold.Ch 2.7: Project Portfolio Process (PPP)Step 1: Establish a Project CouncilStep 2: Identify Project Categories & CriteriaStep 3: Collect Project DataStep 4: Assess Resource AvailabilityStep 5: Reduce Project and Criteria SetStep 6: Prioritize Projects within CategoriesStep 7: Prioritize the projects within categoriesStep 8: Implement the ProcessCh 2.8: Project Proposal:ContentCover letterExecutive summaryDescription and past experience of project teamNature of technical problem to be solvedHow to approach solution of technical problemPlan for implementation of projectPlan for logistic support and administrationCh 2.8: Project Proposal:Cover letter & Executive summaryCompose a cover letter as key marketing instrumentExplain fundamental nature and general benefits of projectMinimally technical languageCh 2.8: Project Proposal:Past Experience of Project TeamList all key project
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