UT Arlington OPMA 5364 - Strategic Management and Project Selection

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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 SelectionMaturity of Project ManagementCriteria for PS ModelsNature of PS ModelsTypes of PS ModelsUncertainty Analysis and Risk ManagementInformation Base for PS ModelsProject Portfolio Process (PPP)Project ProposalCh. 2.0: Overview of PS ProcessProject Management Office (PMO): Aligning corporate needs and project goalsProject Selection: Chose candidate project using Evaluation CriteriaDealing with Uncertainty: Risk AnalysisStrategically selecting best Projects: Project Portfolio Process (PPP)Locking up the deal: Writing a Project ProposalCh. 2.1: Project Management Maturity LevelsAd-hoc (essentially disorganized)Abbreviated (some processes exist)Organized (standardized processes)Managed (measured processes)Adaptive (continuous improvement)Ch 2.2: PS ModelsIdealized view of realityRepresenting the STRUCTURE of the problem, not the detailDeterministic or stochasticCh. 2.2: Criteria for Project Selection modelsRealism (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:CaveatsProject 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:MethodologyStart with detailed list of firm’s goalsCreate list of project evaluation factors (PEF’s)Weigh every element in PEF listCompute an overall score for project based on weighted PEF’sSelect project that has the closest alignment with firm’s goalsCh 2.3: Project Evaluation Factors (PEFs)Production FactorsMarketing FactorsFinancial FactorsPersonnel FactorsAdministrative and Misc. FactorsCh 2.4: Types of PS Models:NonnumericSacred CowOperating NecessityCompetitive NecessityProduct Line ExtensionComparative Benefit ModelCh 2.4: Numeric PS Models:Profit / ProfitabilityPayback Period (PB)Average Rate of ReturnDiscounted Cash Flow (NPV)Internal Rate of ReturnProfitability IndexOther Profitability ModelsCh 2.4: Numeric PS Models:ScoringUnweighted 0-1 Factor ModelUnweighted Factor Scoring ModelWeighted Factor Scoring ModelConstrained Weighted Factor Scoring ModelS = ∑(x)S = ∑(s)S = ∑(s·w)S = ∑(s·w) ∏(c)Ch 2.4: Choosing the PS ModelDependent on wishes and philosophy of management80% of Fortune 500 firms choose “nonnumeric” PS modelsFirms with outside funding often chose scoring PS modelsFirms without outside funding often chose profit / profitability PS modelsCh 2.5: Management of Risk:TerminologyRisk: 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 UncertaintyProject timing & expected cash flow. Direct outcome of project, i.e. what exactly will the project accomplishSide 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 AnalysisEstimate IN ADVANCE economic impact of innovation before R&D is undertakenSet up a baseline of current process as the sum of all current sub processesCompute cost / performance of new innovation as a multiple of each sub process in the baseline systemCh. 2.6: Problems Affecting Data Used in PS ModelsAccounting: arbitrary assignment of overhead costs, linear cost and revenue forecastsMeasurements: (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 CouncilStep 2: Identify Project Categories & CriteriaStep 3: Collect Project DataStep 4: Assess Resource AvailabilityStep 5: Reduce Project and Criteria SetStep 6: Prioritize Projects within CategoriesStep 7: Prioritize the projects within categoriesStep 8: Implement the ProcessCh 2.8: Project Proposal:ContentCover letterExecutive summaryDescription and past experience of project teamNature of technical problem to be solvedHow to approach solution of technical problemPlan for implementation of projectPlan for logistic support and administrationCh 2.8: Project Proposal:Cover letter & Executive summaryCompose a cover letter as key marketing instrumentExplain fundamental nature and general benefits of projectMinimally technical languageCh 2.8: Project Proposal:Past Experience of Project TeamList all key project


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UT Arlington OPMA 5364 - Strategic Management and Project Selection

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