Project Management: Chapter2: Project Formulation & Project Organization

quiz-September 23, 2017
September 24, 2017
quiz-September 24&25,2017
September 26, 2017

1.Introduction

1.1 Objective of Analysis

1.2 Decisions & Actions

1.3 Decision matrix

1.4 Weighted Decision Matrix

2. Project Appraisals

  1. Technical Feasibility 
  2. Financial Feasibility
  3. Legal Feasibility
  4. Operational Feasibility
  5. Scheduling Feasibility

3. Financial Analysis/Feasibility

3.1 Net Present Value (NPV)

3.2 Return on Investment (RoI)

3.3 Payback Period

3.4 Market and Demand Analysis

4. Methods of Demand Forecasting

(A) Jury or expert opinion

(B) Delphi Method

(C) Time series Projection Method

(D) Casual Method

5. Formulation of Project Charter

5.1 Simple example of project charter

6. Project Organization

6.1 Functional Organization

6.2 Product/Project Organization

6.3 Matrix Organization

7. Project Manager

7.1 Planning

7.2 Organizing

7.3 Leading

7.4 Controlling

7.5 Qualities of a Project Manager

1. Introduction

The project initiation phase is the first phase within the project management life cycle, as it involves starting up a new project. Within the initiation phase, the business problem or opportunity is identified, a solution is defined, a project is formed, and a project team is appointed to build and deliver the solution to the customer. A business case is created to define the problem or opportunity in detail and identify a preferred solution for implementation.

The business case includes:

  • A detailed description of the problem or opportunity with headings such as Introduction, Business Objectives, Problem/Opportunity Statement, Assumptions, and Constraints
  • A list of the alternative solutions available
  • An analysis of the business benefits, costs, risks, and issues
  • A description of the preferred solution
  • Main project requirements
  • A summarized plan for implementation that includes a schedule and financial analysis

1.1 Objective of Analysis

  • Understand the business requirements of a project.
  • Understand the benefits of delivering a project in terms of possible future profits, risk reduction or process improvement.
  • Establish and agree exactly what a project is going to accomplish.
  • Get sign-off from the business and other key stakeholders on what the project is going to do.

1.2 Decisions & Actions

Following are the possible decisions that comes out of business case study analysis

  • The project sponsor approves the business case and the required funding is allocated to proceed with a feasibility study.
  • The completion and approval of the feasibility study triggers the beginning of the planning phase.
  • Project sponsor will determine if the project is worth undertaking and whether the project will be profitable to the organization.
  • The feasibility study may also show that the project is not worth pursuing and the project is terminated; thus the next phase never begins.

 

The success of your project depends on the clarity and accuracy of your business case and whether people believe they can achieve it. The best way to make an objective clear to all the teams involved  is to state it in such a way that it can be verified. It is important to provide quantifiable definitions to qualitative terms.

How the customer explained it How the project leader understood it How the team designed it

Example: Objective interpretation of different teams

1.3 Decision Matrix

A basic decision matrix consists of establishing a set of criteria for options that are scored and summed to gain a total score that can then be ranked. Importantly, it is not weighted to allow a quick selection process.

Example

A caterer needs to find a new supplier for his basic ingredients. He has four options.

Factors Cost Quality Location Reliability Payment Options Total
Supplier 1 4 0 0 2 9 15
Supplier 2 0 15 2 4 3 24
Supplier 3 8 10 1 6 0 25
Supplier 4 8 15 3 6 0 32

1.4 Weighted Decision Matrix

A weighted decision matrix operates in the same way as the basic decision matrix but introduces the concept of weighting the criteria in order of importance.

Procedure:

  • The more important a criterion, the higher the weightage it should be given.
  • Each of the potential options is scored and then multiplied by the weightage given to each of the criteria to produce a result
  • The resultant scores better reflect the importance to the decision maker of the criteria involved.

Advantages

  • subjective opinions about one alternative versus another can be made more objective.
  • sensitivity studies can be performed. An example of this might be to see how much your opinion would have to change in order for a lower-ranked alternative to outrank a competing alternative.

A weighted decision matrix therefore allows decision makers to structure and solve their problem by:

  1. Specifying and prioritizing their needs with a list a criteria; then
  2. Evaluating, rating, and comparing the different solutions; and
  3. Selecting the best matching solution.

Example

A caterer needs to find a new supplier for his basic ingredients. He has four options.

Factors Cost Quality Location Reliability Payment Options Total
Weights 4 5 1 2 3  
Supplier 1 4 0 0 2 9 16+0+0+4+27 = 47
Supplier 2 0 15 2 4 3 0+75+2+8+9 = 94
Supplier 3 8 10 1 6 0 32+50+1+12+0 = 95
Supplier 4 8 15 3 6 0 32+75+3+12+0 = 122

 

This makes it clear to the caterer that Supplier 4 is the best option, despite the lack of flexibility of its payment options.

 

2. Project Appraisals

1. Technical Feasibility 

  • This assessment focuses on the technical resources available to the organization.

Example:

As an exaggerated example, an organization wouldn’t want to try to put Star Trek’s transporters in their building—currently, this project is not technically feasible.

2.Financial Feasibility

  • This assessment typically involves a cost/benefits analysis of the project.

3.Legal Feasibility

  • This assessment investigates whether any aspect of the proposed project conflicts with legal requirements like zoning laws, data protection acts, or social media laws.

Example:

  • Let’s say an organization wants to construct a new office building in a specific location.
  • A feasibility study might reveal the organization’s ideal location isn’t zoned for that type of business.
  • That organization has just saved considerable time and effort by learning that their project was not feasible right from the beginning.

4.Operational Feasibility

  • This assessment involves undertaking a study to analyze and determine whether—and how well—the organization’s needs can be met by completing the project.
  • Operational feasibility studies also analyze how a project plan satisfies the requirements identified in the requirements analysis phase of system development.

5.Scheduling Feasibility

  • This assessment is the most important for project success; after all, a project will fail if not completed on time.
  • In scheduling feasibility, an organization estimates how much time the project will take to complete.

3. Financial Analysis/Feasibility

In many new project endeavors, we need to find out if our project is financially feasible.  We do that by using net present value (NPV), rate of return (ROI), and payback analysis.

3.1 Net Present Value (NPV)

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms.

where

   t  is the time of the cash flow

  i is the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk; the opportunity cost of capital)

  Rt is the net cash flow (i.e., cash inflow – cash outflow, at time t).

Conclusions

  • NPV is an indicator of how much value an investment or project adds to the firm.
  • If NPV is a positive value, the project is in the status of positive cash inflow in the time t.
  • If NPV is a negative value, the project is in the status of discounted cash outflow in the time t.
  • In financial theory, if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected.
If… It means… Then…
NPV > 0 The investment would add value to the firm. The project may be accepted.
NPV < 0 The investment would subtract value from the firm. The project should be rejected.
NPV = 0 The investment would neither gain nor lose value for the firm. We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria (e.g., strategic positioning or other factors not explicitly included in the calculation).

 

Source:  http://en.wikipedia.org/wiki/Net_present_value

3.2 Return on Investment (ROI)

Return on investment (ROI) is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. It is one way of considering profits in relation to capital invested.

This is calculated by subtracting the project’s costs from the benefits and then dividing by the costs.

Example: if you invest $100 and your investment is worth $110 next year, the ROI is (110-100)/100 = 0.1 or a 10% return.

3.3 Payback Period

Payback analysis is important in determining the amount of time it will take for a project to recoup its investments. This is the point at which the benefits start to outweigh the costs. The best way to see that is by charting the cumulative benefits and costs. Check the following figure where the cumulative benefits outweigh the cumulative costs in the second year.

Payback Analysis Chart

3.4 Market and Demand Analysis

Market and Demand Analysis is required to meet planning and decision making for the projects undertaken. This is conducted to know about the market in relation with the project.

It involves the following activities:

(i) Situation analysis and specification of objectives

(ii) Collection of Information

(iii) Conducting Market Survey

(iv) Demand Forecasting

 

4. Methods of Demand Forecasting

It refers to estimation of future demand for a product or service. Forecasting methods may be broadly divided into three categories i.e. Qualitative and Quantitative methods

(A) Jury or expert opinion

It involves soliciting the opinions of a group of Managers on expected future sales and combining them into a sales estimate.

Advantages

  1. It considers a variety of factors
  2. Cheap method for developing demand forecasting

Disadvantages

  1. The managers may be bias
  2. The reliability of the technique is always in question

(B) Delphi Method

It is used for eliciting the opinions of a group of experts with the help of mail survey.

Steps:

  1. A Group of experts are sent questionnaire and asked to express their views.
  2. The responses received are summarized and another questionnaire based on this response is sent back, not revealing the identity of the experts.
  3. The process is continued till a reasonable agreement emerges.

(C) Time series Projection Method

It involves analysis of historical time series.

(i) Trend Projection Method

It works on a linear relationship

                                                   Yt = a + b t

Where Yt = demand for a year

          t = time variable

          a = intercept of relationship

          b = slope of relationship

(ii) Exponential smoothing method

In this method forecasts are modified in the light of observed errors using relationship

                                             Ft + 1 = Ft + d et

Where         Ft + 1 = forecast for the year t+1

                    d = smoothing parameter

                    et = is the error in the forecast for the year t

(iii) Moving Average  Method

  • In this method forecast for next period is equal to the average of sales in several preceding years.

(D) Casual Method

It uses the phenomenon of change in one parameter due to the change in another parameter to develop a cause effect relationship which can be converted into quantitative method.

(i) Chain Ratio Method

  • Under this method the potential sales of a product may be estimated by applying a series of factors to a measure of aggregate demand.
  • It uses a simple analytical approach for estimating demand. Its reliability depends upon the ratio and rates used in the process, one ratio leads to another.

(ii) Consumption level Method

  • It is used for products which are directly consumed.  
  • Consumption level is estimated on the basis of elasticity co-efficient for a product.

5. Formulation of Project Charter

A project charter, project definition, or project statement is a statement of the scope, objectives, and participants in a project. It provides a preliminary delineation of roles and responsibilities, outlines the project objectives, identifies the main stakeholders, and defines the authority of the project manager. It serves as a reference of authority for the future of the project.

Purpose of the Project Charter

The purpose of a project charter is to:

  • Provide an understanding of the project, the reason it is being conducted, and its justification
  • Establish early on in the project the general scope
  • Establish the project manager and his or her authority level. A note of who will review and approve the project charter must be included.

5.1 Simple example of project charter

Identification Section

List the project name, the date of the current version of the project charter, the sponsor’s name and authority, and the project manager’s name.

Example:

Project Name: Rice University Computer Store Creation

Project Sponsor: Jane Ungam, Facilities Manager

Date: Jan 12, 2010

Revision: 1

Project Manager: Fred Rubens

Overview of the Project

Provide a simple but precise statement of the project.

Example:  Rice University is planning to create a store to sell computer supplies.

Objective

State the objectives of the project clearly and ensure they contain a measure of how to assess whether they have been achieved. The statement should be realistic and should follow the SMART protocol:

  • Specific (get into the details)
  • Measurable (use quantitative language so that you know when you are finished)
  • Acceptable (to stakeholders)
  • Realistic (given project constraints)
  • Time based (deadlines, not durations)

Example:  The objective of this project is to implement a campus store that is ready to sell computer supplies such as memory sticks, mouse pads, and cables, when class starts in August 2010, with enough inventory to last through the first two weeks of classes.

Scope

Specify the scope of the project by identifying the domain or range of requirements.

Example:  The scope of the Rice’s school supplies store project includes the activities listed below:

  1. Determine what supplies will be sold in the store.
  2. Establish competitive prices for the computer supplies.
  3. Source and secure supply vendors.
  4. Establish marketing, procurement, operations, and any other necessary departments, schools, centers, and institutes.

It is equally important to include in the scope what is not included in the project.

Example: The scope of the project does not include:

  • Development of any other school store departments
  • Store design or construction

Major Milestones

List all major milestones needed to ensure project completion successfully.

Example:

  • All vendors selected
  • Contracts or orders completed with all vendors
  • Supplies delivered to the store
  • Pricing determined

Major Deliverables

List and describe the major deliverables that will result from the project.

Example:

  • Supplies procured
  • Operations, procurement, marketing, and other teams established
  • Store supplies stocked and displayed
  • Store staffing completed, including work schedules
  • Store operations policies, including hours of operation, established

Assumptions

Outline the assumptions made in creating the project. An assumption is a fact you are unsure of but can either confirm at a later time or are simply stating so that the project can proceed as if the statement were true.

Example:

  • Only computer supplies will be sold in the store.
  • Customers will be the Rice University student body and faculty.
  • Rice University students will manage the project and be responsible for ongoing operations.
  • A store sponsor from the university faculty or staff will be assigned to mentor students and provide oversight.
  • Store hours of operation will be approved by the Rice University students or store sponsor.
  • Supplier deliveries will be arranged or the store sponsor will pick them up with students.
  • Students will be empowered to contact vendors for order placement and inquiries via telephone.

Constraints

Define any and all constraints on the project or those working on the project. This is an important part of the project charter. A constraint is anything that limits the range of solutions or approaches.

Example:

  • Student availability to meet for project planning is limited to school hours.
  • Software is not available for project planning and control.

Business Need or Opportunity (Benefits)

Provide a concise statement of the business need or opportunity that led to the creation of the project. Why was it created?  What are the benefits? How does the project contribute to organizational objectives?

Example:  The goal of this project is to provide income for the Rice Student Center while supplying necessary items to students and faculty at competitive prices. The school store will be a convenience to students since necessary supplies will be available on campus. This will help students learn to manage their personal supplies.

Preliminary Cost for the Project

Provide a statement indicating how the cost of the project will be defined and controlled.

Example:  The procurement team will assemble a proposal based on expected costs for review by the Dean of Undergraduate Studies.

Project Risks

  • The cloud is changing student demand for media such as flash drives in somewhat unpredictable ways. If this happens faster than we forecast, we may be building a store that students don’t need.
  • Deliveries of store shelves, etc. will be delayed if a major hurricane occurs.A risk is anything uncertain that may occur that will reduce or decrease the chances of project success.

Example:

  • There is a state election coming and the new government may change the taxation rules for private university retail outlets.

 

6. Project Organization

6.1 Functional Organization


Description :

This type of organization is grouped by different areas of specialization within different functional areas such as accounting , marketing , purchase , etc . Projects in these type of organizations are usually taken up in a single department  and the team members may be loaned to these projects from time to time . Team members are expected to take up departmental work in addition to their project work . Each department in a functional organization will do its project work independently of other departments . If any information is needed from another department ,  request is sent by the head of the department which is implementing the project to the head of the department from whom the information is needed.

  • Who is in charge ? In a functional organization the functional or departmental manager is in charge  . The project budget is usually managed by the functional manager . The project manager has low influence or power or he could even be a part time employee .

Advantages  : Some of the advantages of a functional type of organization are

  • Well defined career paths for the team members in their areas of specialization .
  • Deeper company expertise by function .
  • Team members usually report to one single supervisor .
  • Similar resources are centralized as the company is grouped by specialties .

Disadvantages : Some of the disadvantages of a functional type of organization are  

  • The project manager has very little or no authority .
  • Functional organizations lack career paths in project management .
  • Priority on the projects are lower and people place more emphasis on their functional speciality to the detriment of their project .

6.2 Product/Project Organization 

Description :

In a projectized organization , the entire company is structured according to projects instead of functional departments . Team members are often collocated and most of the company’s resources are allocated to project work . In these types of organizations , the project manager is highly empowered  . These are mostly found in consulting environments . People are assigned and report to a project manager . Once the projects are over , the team members are assigned to another project or they need to find work with a different employer . All the communication occurs within the project 

  • Who is in charge ? In a projectized environment , the project manager has the highest level of control .
  • Advantages  : Some of the advantages of a projectized organization are :
    • In a projectized organization , the project manager has complete authority .
    • Loyalty is strong , to both the team and the project .
    • Since everyone  is on a single team , project communications are easier and they are more efficient in comparison to functional organizations .
  • Disadvantages : Some of the disadvantages of a projectized organization are :
    • Project ‘team members ‘ work themselves out of a job and may have no ‘home’ when the project is completed .
    • Professional growth could be difficult in a projectized organization .

In a projectized organization , team members only belong to a project – not to a functional area

6.3 Matrix Organization 

Description :

In a matrix type of an organization , individuals report to both the functional manager for human resources and a project manager for projects . Team members are required to perform project work in addition to departmental work . Matrix organizations are classified as weak , balanced and strong depending upon the relative level of power and influence between functional managers and project managers .

Weak Matrix:

In a weak matrix , the functional manager has more authority . In such a type of organization , the project manager’s role is more of a project expeditor or a project coordinator. The project expeditor acts primarily as a staff assistant and communications coordinator. The expeditor cannot personally make or enforce decisions. The project coordinator is similar to the project expeditor except that the project expeditor has some power to make decisions and reports to a higher level manager.

  • Balanced Matrix In a balanced matrix , power is shared evenly between functional and project managers .
  • Strong Matrix In a strong matrix , power rests with the project manager .
  • Who is in charge ? In a matrix organization , the power is shared between project managers and functional managers .
  • Advantages : Some of the advantages of a matrix type of an organization are :
    • In Matrix type of organizations , project managers could gain deep expertise of a functional organization , while still being empowered to manage the resources on a project .
    • In a Matrix type of organizations , you could have maximum utilization of scarce resources .
    • Disadvantages : Some of the disadvantages of a matrix type of organization are :
      • Since team members in matrix type of organizations have two bosses , it could sometimes cause conflicts and confusion .

In these types of organizations , overheads could be more due to duplication of many tasks .

7. Project Manager

The project manager identifies the central problem to solve and determines, with input from the sponsor and stakeholders, how to tackle it: what the project’s objectives and scope will be and which activities will deliver the desired results. He then plans and schedules tasks, oversees day-to-day execution, and monitors progress until he evaluates performance, brings the project to a close, and captures the lessons learned.

Role:

Project manager responsibilities and duties using the four functions of management as a framework…

  • Planning
  • Organizing
  • Leading
  • Controlling

7.1 Planning

Planning is an essential duty of a project manager. Determining what needs to be done, who is going to do it, and when it needs to be done are all part of the planning process. Keep in mind that planning is an iterative process that takes place throughout the life of the project.

Some key planning duties include,

  • Define and clarify project scope
  • Develop the project plan
  • Develop the project schedule
  • Develop policies and procedures to support the achievement of the project objectives

7.2 Organizing

Organizing is about setting up the project team’s structure. A major driver in this aspect is the company’s existing structure. Companies are usually set up as functional, matrix, or projectized organizations. When organizing your project, you will need to take the company’s structure into account.

Some of the key organizing duties include…

  • Determine the organizational structure of the project team
  • Identify roles and positions
  • Identify services to be provided by external companies
  • Staff project positions

7.3 Leading

Leading refers to carrying out the project plan in order to achieve the project objectives. Leading the project is one of the more challenging aspects for new project managers because it involves a lot of “soft skills.” Skills such as communicating clearly, team motivation, and conflict resolution.

Some key duties for leading projects include…

  • Setting team direction
  • Coordinating activities across different organizational functions
  • Motivating team members
  • Assigning work

7.4 Controlling

Controlling is all about keeping the project on track. Project control can be performed using a three-step process.

  • Measuring: Checking project progress toward meeting its objectives
  • Evaluating: Determining the cause of deviations from the plan
  • Correcting: Taking corrective actions to address deviations

Some key controlling duties include…

  • Defining project baselines
  • Tracking project progress
  • Project status reporting
  • Determining and taking corrective actions

7.5 Qualities of a Project Manager

  1. Organisational Ability – Discipline of good documentation and records will support the consistent delivery of on-time and successful projects.
  2. Strong communication skills – Clear communication to project leadership teams, steering committees,stakeholders, clients and your project team or your own boss on the outcomes and progress of the project.
  3. Ability to facilitate discussions – A project manager should be able to organise collaboration between the project team and clients, and other technical resources to improve the project outputs.
  4. Financial understanding – It is critical to have an understanding of the budget build up and financial status of the project.
  5. Contractual skills – Your project may, for example, need contractual arrangements for intellectual property (IP) created during the project.
  6. Multi tasking – typically you will need to be able to manage multiple project tasks or even multiple projects. A good system will be the best support tool to do this.
  7. Good timing – Being timely as a project manager not only sets an example for your team, but will also assist in making your project come in on time.
  8. Thinking on your feet – Sometimes despite all your preparation a good project manager will have to come up with solutions with a project on the spot. This can be minimised by well thought out discussions on risks and potential challenges held at the start of the project at key milestones.
  9. Strong focus on safety – Keeping people safe is the number one priority for any project. For some project managers this will be relatively easy as your project may be largely office based, focused on IT development or report creation..
  10. Inspiration – Building on strong communication and effective facilitation of meetings is the requirement for a project manager to inspire teams to complete tasks.

 

References:

  1. https://opentextbc.ca/projectmanagement/chapter/chapter-7-project-initiation-project-management/

7 Comments

  1. rakesh says:

    sir ur notes is very proper and understandable. tell me do i need to read more from coaching booklet or whatever u provide is sufficient for project management

  2. Vinaykumar reddy says:

    Hi sr
    Will u provide standards and quality practices in production notebook

  3. Niranjan says:

    great work

  4. Harsh says:

    Great Work !

  5. Rajesh says:

    Great

  6. Thanu says:

    Is this sufficient for…ies 2019?

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