Chapter 2 Strategic Management and Project Selection CHAPTER 2 – by znm40991

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									CHAPTER 2 – PROJECTS AND                           REVISITING STRATEGY AND
STRATEGY                                           STRATEGY MANAGEMENT

  OBJECTIVES
    REVISIT STRATEGY                                 Describe the major components of the
    NEED FOR PORTFOLIO MANAGEMENT SYSTEMS            strategic management process?
    SUPPORT FOR PROJECT PRIORITISATION
    DESIGNING PORTFOLIO MANAGEMENT SYSTEMS
                                                     Explain the role that projects play in the
    SELECTING PROJECTS AND PROPOSALS
                                                     strategic management process.
    USING THE BALANCED SCORECARD




BALANCED SCORECARD                                 ISSUES IMPACTING THE PROJECT
                                                   MANAGER AND STRATEGY MANAGEMENT

                                                     PROJECT MANAGERS CAN NO LONGER MERELY BE
  MEASURES OVERALL RESULTS OF A                      OPERATIONAL ONLY – THEY NEED TO BE VISIONARIES,
  PROJECT IN TERMS OF STRATEGIC                      COMFORTABLE WITH THE ORGANISATION’S MISSION AND
                                                     STRATEGY
  OBJECTIVES ETC                                     WHY? INCREASINGLY FOCUS IS PLACED ON THE ROLE THAT
                                                     PROJECT MANAGEMENT PLAYS IN STRATEGIC
    CUSTOMER (QUALITY, SALES ETC)                    IMPLEMENTATION
    INTERNAL (TIME TO MARKET, DESIGN TIME ETC)       PROJECT MANAGERS NEED TO BE ABLE TO SELL THEIR
                                                     PROJECTS TO TOP MANAGEMENT BY INTEGRATING WITH THE
    INNOVATION AND LEARNING (PROJECT                 MISSION OF THE ORGANISATION
    IMPROVEMENT SAVINGS, PERCENTAGE OF               YET, ALL TOO OFTEN PROJECT MANAGERS EITHER FOCUS ON
                                                     PROJECTS WITH LIMITED VALUE, OVEREMPHASISE THE
    PROFITS FROM NEW PRODUCTS ETC)                   IMPORTANCE OF TECHNOLOGY OR EVEN FAIL TO FOCUS ON
                                                     THE ENTIRE VALUE CHAIN, CHOOSING RATHER TO SATISFY
    FINANCIAL MEASURES (CASH FLOW, ROI ETC)          THE IMMEDIATE CUSTOMER




REVISITING STRATEGY AND
STRATEGY MANAGEMENT                                PROJECT PORTFOLIO MANAGEMENT
                                                     A PORTFOLIO APPROACH TO MANAGING PROJECTS HELPS
                                                     ALIGN PROJECTS WITH STRATEGY AND ASSISTS IN PROJECT
  How are projects linked to the strategic plan?     SELECTION
                                                     CLASSIFICATION:
                                                        COMPLIANCE AND EMERGENCY (must do)
                                                        OPERATIONAL PROJECTS (support current operations)
                                                        STRATEGIC PROJECTS (link to mission)
                                                        STRATEGIC VALUE OF PROJECTS MUST BE DETERMINED
                                                        BEFORE GOING IN THE PORTFOLIO – HOWEVER,
                                                        SOMETIMES COMPLIANCE PROJECTS OFTEN IGNORES
                                                        OTHER SELECTION CRITERIA




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PROJECT PORTFOLIO MANAGEMENT                                     A PORTFOLIO MANAGEMENT
PROBLEMS                                                         SYSTEM

  IMPLEMENTATION GAP: Top management                               Selection Criteria
  formulates strategy – implemented by functional
  managers – often too little interaction                            Financial: payback, net present value
  ORGANISATIONAL POLITICS: pet projects of top                       (NPV), internal rate of return (IRR)
  ranking executives often receive more resources;                   Non-financial: projects of strategic
  projects also need sponsors and champions; finally,                importance to the firm.
  individuals choose high profile projects to enhance
  their own status                                                 Multi-Weighted Scoring Models
  RESOURCE CONFLICTS AND MULTITASKING: multi-                        Use several weighted selection criteria to
  project environments result in resource-sharing,                   evaluate project proposals.
  which in turn leads to multitasking




FINANCIAL MODELS                                                 FINANCIAL MODELS

  The Payback Model                                                The Net Present Value (NPV) model
    Measures the time it will take to recover the                    Uses management’s minimum desired rate-of-
    project investment.                                              return (discount rate) to compute the present
                                                                     value of all net cash inflows.
    Shorter paybacks are more desirable.                                Positive NPV: the project meets the minimum desired
    Emphasizes cash flows, a key factor in business.                    rate of return and is eligible for further consideration.
                                                                        Negative NPV: project is rejected.
    Limitations of payback:
       Ignores the time value of money.
       Assumes cash inflows for the investment period (and not
       beyond).
       Does not consider profitability.




APPLYING A SELECTION MODEL                                       PROJECT PROPOSALS

  Project Classification                                           Sources and Solicitation of Project Proposals
    Deciding how well a strategic or operations project              Within the organization
    fits the organization’s strategy.                                Request for proposal (RFP) from external sources
                                                                     (contractors and vendors)
  Selecting a Model
                                                                   Ranking Proposals and Selection of Projects
    Applying a weighted scoring model to bring                       Prioritizing requires discipline, accountability,
    projects to closer with the organization’s strategic             responsibility, constraints, reduced flexibility, and
    goals.                                                           loss of power.
       Reduces the number of wasteful projects
                                                                   Managing the Portfolio
       Helps identify proper goals for projects
                                                                     Senior management input
       Helps everyone involved understand how and why a
       project is selected                                           The priority team (project office) responsibilities




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PROJECT SELECTION                                                MANAGING THE PORTFOLIO
  COLLECT NECESSARY INFORMATION TO ASSESS                          Senior Management Input
  VALUE OF PROJECT                                                   Provide guidance in selecting criteria that are
  PROJECT MATRIX:                                                    aligned with the organization’s goals
    IDENTIFY CRITERIA                                                Decide how to balance available resources among
    ALLOCATE WEIGHTINGS ACCORING TO IMPORTANCE TO                    current projects
    STRATEGY AND OBJECTIVES                                        The Priority Team Responsibilities
    ALLOCATE VALUES TO EACH CRITERION                                Publish the priority of every project
    EVALUATE PROJECT
                                                                     Ensure that the project selection process is open
  EVALUATION FORMS:                                                  and free of power politics.
    “MUST” OBJECTIVES ARE SCREENING                                  Reassess the organization’s goals and priorities
    “WANT” OBJECTIVES ARE ASSIGNED A VALUE ACCORDING                 Evaluate the progress of current projects
    TO THEIR RELATIVE IMPORTANCE AND WEIGHTED




DIMENSIONS OF THE PROJECT
PORTFOLIO MATRIX                                                 KEY TERMS
  Bread-and-butter projects                                        Balanced scorecard
    Involve evolutionary improvements to current products and      Implementation gap
    services.                                                      Net present value
  Pearls                                                           Payback
    Represent revolutionary commercial advances using proven       Organizational politics
    technical advances.
                                                                   Priority system
  Oysters                                                          Priority team
    Involve technological breakthroughs with high commercial
    payoffs.                                                       Project portfolio
  White elephants                                                  Project screening matrix
    Projects that at one time showed promise but are no longer     Sacred cow
    viable.                                                        Strategic management process




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