Project Management

Module 2
Initiating Project

Syllabus
How to get a project started, Selecting project strategically, Project
selection models (Numeric /Scoring Models and Non-numeric models),
Project portfolio process, Project sponsor and creating charter; Project
proposal. Effective project team, Stages of team development & growth
(forming, storming, norming &performing), team dynamics

Project Initiation

 The Initiating Process Group consists of those processes performed to

define a new project or a new phase of an existing project by obtaining
authorization to start the project or phase.
 The purpose of the Initiating Process Group is to align the stakeholders’
expectations and the project purpose, inform stakeholders of the scope
and objectives, and discuss how their participation in the project and its
associated phases can help to ensure their expectations are met.

 Within the Initiating processes, the initial scope is defined and initial
financial resources are committed. Stakeholders who will interact and
influence the overall outcome of the project are identified.
 If not already assigned, the project manager is appointed. This information
is captured in the project charter and stakeholder register. When the
project charter is approved, the project is officially authorized, and the
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project manager is authorized to apply organizational resources to project

activities.
 The key benefits of this Process Group are that only projects that are
aligned with the organization’s strategic objectives are authorized and that
the business case, benefits, and stakeholders are considered from the start
of the project.
 In some organizations, the project manager is involved in developing the
business case and defining the benefits. In those organizations, the project
manager generally helps write the project charter; in other organizations,
the pre-project work is done by the project sponsor, project management
office (PMO), portfolio steering committee, or other stakeholder group.
 This standard assumes the project has been approved by the sponsor or
other governing body and they have reviewed the business documents
prior to authorizing the project.
 Involving the sponsors, customers, and other stakeholders during
initiation creates a shared understanding of success criteria. It also
increases the likelihood of deliverable acceptance when the project is
complete, and stakeholder satisfaction throughout the project.
Project selection models
When you have a number of interesting and challenging projects to choose from,
finding a project that is the right fit for your team’s skill set, level of competence,
and has the best chance of success is the first step in effective project
management.
Project Selection Methods offer a set of time-tested techniques based on sound
logical reasoning to choose a project and filter out undesirable projects with a
very low likelihood of success.
There are two categories of project selection methods:
1. Benefit Measurement Methods
2. Constrained Optimization Methods
Although time-consuming, employing these methods is essential for an effective
business plan. There are a variety of documented methods for selecting a project,
but the basic thumb rule is: for small projects that aren’t very complex, the
Benefit Measurement Model is useful, whereas if it’s a large, complex project, the
Constrained Optimization Method is a better fit.

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Benefit Measurement Methods (Numerical Methods)

Benefit/Cost Ratio
 Cost/Benefit Ratio, as the name suggests, is the ratio between the Present
Value of Inflow or the cost invested in a project to the Present Value of
Outflow, which is the value of return from the project.
 Projects that have a higher Benefit-Cost Ratio or lower Cost-Benefit Ratio
are generally chosen over others.
Economic Model
 EVA, or Economic Value Added, is the performance metric that calculates
the worth-creation of the organization while defining the return on capital.
It is also defined as the net profit after the deduction of taxes and capital
expenditure
 If there are several projects assigned to a project manager, the project that
has the highest Economic Value Added is picked. The EVA is always
expressed in numerical terms and not as a percentage.
Scoring Model in Project Management

 The scoring model in project management is an objective technique: the

project selection committee lists relevant criteria, weighs them according
to their importance and their priorities, then adds the weighted values.
Once the scoring of these projects is completed, the project with the
highest score is chosen.
 To create a weighted scoring model, the following steps are applied:
i. Identify the criteria important to the decision process

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ii. Assign a weight to each criterion based on its relative importance in the
decision (ideally, so they all add up to 100%)
iii. Assign numerical scores to each criterion for all of the options being
considered.
iv. Calculate the weighted scores by multiplying the weight for each
criterion by its score and adding the resulting values.

Payback Period
 Payback Period is the ratio of the total cash to the average per period cash.
It is the time necessary to recover the cost invested in the project. The
Payback Period is a basic project selection method. As the name suggests,
the payback period takes into consideration the payback period of an
investment. It is the time frame that is required for the return on an
investment to repay the original cost that was invested. The calculation for
payback is fairly simple:
 When the Payback period is used as the Project Selection Method, the
project that has the shortest Payback period is preferred since the
organization can regain the original investment faster. There are, however,
a few limitations to this method:
 It does not consider the time value of money.
 Benefits accrued after the payback period are not considered; it
focuses more on the liquidity while profitability is neglected.
 Risks involved in individual projects are neglected.
Net Present Value
 Net Present Value is the difference between the project’s current value of
cash inflow and the current value of cash outflow. The NPV must always
be positive. When picking a project, one with a higher NPV is preferred.
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The advantage of considering the NPV over the Payback Period is that it
takes into consideration the future value of money.
 The net present values of all cash inflows and an outflow occurring during
the entire life of the project is determined separately for each year by
discounting these flows by a pre-determined rate.
NPV ═ Total present value of cash Inflows – Present value of initial investment
 However, there are limitations of the NPV, too:
 There isn’t any generally accepted method of deriving the discount value
used for the present value calculation.

 The NPV does not provide any picture of profit or loss that the
organization can make by embarking on a certain project.
Sample e.g.:
A project costs 100,000 to implement and has annual cash inflow of 25,000.
Calculate the payback period for this. Also calculate NPV for the same for four
years and a required rate of return of 8 percent. Net cash flow is 65000,
75000,10000 and 10000 for year1, year2, year3 & year4 respectively.
Internal Rate of Return
 The Internal Rate of Return is the interest rate at which the Net Present
Value is zero—attained when the present value of outflow is equal to the
present value of inflow.
 Internal Rate of Return is defined as the “annualized effective compounded
return rate” or the “discount rate that makes the net present value of all
cash flows (both positive and negative) from a particular investment equal
to zero.”
 The IRR is used to select the project with the best profitability; when
picking a project, the one with the higher IRR is chosen.
 When using the IRR as the project selection criteria, organizations should
remember not to use this exclusively to judge the worth of a project; a
project with a lower IRR might have a higher NPV and, assuming there is
no capital constraint, the project with the higher NPV should be chosen as
this increases the shareholders’ profits.
Non-Numeric Project Selection Models
Non – Numeric project selection models have further 6 types, which we need to
discuss in detail.
 The Sacred Cow
 The Operating Necessity
 The Competitive Necessity
 The Product Line Extension

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 Comparative Benefit Model

 Q-Sort Model
1. The Sacred Cow
 The senior and he powerful official in the company suggest the project in
this case. Mostly the project is simply initiated from an apparent
opportunity or chance which follows an un-established idea for a new
product, for the designing & adoption of the latest information system with
universal database, for the establishment of a new market or for some
other category of project that demands the investment of the resources of
the organization.
 The project is created as an immediate result of this bland approach for
investigating whatever the boss has proposed. The sacredness of the
project reflects the fact that it will be continued until ended or until the
boss himself announces the failure of the idea & ends it.
2. The Operating Necessity
 If a plant is threatened by the flood, then it is not much complex and
effortful to start a project for developing a protective desk. This is the best
example of operating a necessity. Potential projects are evaluated by using
this criterion of project selection by the XYZ steel corporation.
 Certain questions come in front of the project is needed in order to keep
the system functioning like is the estimated cost of the project is effective
for the system? If the answer to such an important question is yes, then
the project costs should be analyzed to ensure that these are maintained
as the minimum and compatible with the success of the project. However,
the project should be financed.
3. The Competitive Necessity
 In the late 1960s, XYZ Steel considered an important plant rebuilding
project by using this criterion in its steel bar producing facilities near
Chicago. It was clear to the management of the company that certain
modernization is required in its bar mill in order to keep the current
competitive position in the market area of Chicago.
 Perhaps the project has a modern planning process, the desire to keep the
competitive position of the company in the market provide a basis for
making such a decision to carry on the project. Similarly, certain
undergraduate and Master in Business Administration (MBA) programs
are restructured in the offerings of many universities to keep their
competitive position in the academic market.
 Precedence is taken by the operating necessity projects over competitive
necessity projects regarding investment. But both of these types of project

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selection models are considered much useful & effective as compared to

other select models.
4. The Product Line Extension
 In case of the product line extension, a project considered for development
& distribution of new products will be evaluated on the basis of the extent
to which it suits the company’s current product lines, fortify a weak line,
fills a gap, or enhanced the line in a new & desirable direction.
 In certain cases, careful evaluations of profitability is not needed. The
decision-makers can perform actions on the basis of their belief about the
probable influence of the addition of the new product to the line over the
entire performance of the system.
5. Q-Sort Model
 The Q-Sort model is one of the most straightforward techniques for
ordering projects. According to their relative merits, the projects are first
divided into three groups which are Good, Fair and Poor. The main group
is further subdivided into the two types of fair-minus and fair-plus if any
group has more than eight members.
 The projects within each type are ranked from best to worst when all types
have eight or fewer members. Again relative merit provides the basis for
determining the order. The specific criterion is used by the rater to rank
each project or he may merely use general entire judgment.
 One person has the responsibility to carry out the process for evaluation
& selection of the project. In certain cases, there is a selection committee
for performing such a process. If the task is handled by the committee,
individual ranking can be built anonymously and the committee examines
the set of anonymous rankings for consensus.
 These ranking differ from to some degree from rater to rater but that
difference is not much enhanced because the selected individuals for such
committees seldom differ increasingly on their consideration for the
suitability for the parent organization.
Project Portfolio Management (PPM)
Project portfolio management (PPM) refers to the consolidated planning,
tracking, and management of processes, projects, and technologies to help
project managers command and evaluate projects —both existing and proposed
— based on specific details.
Using PPM, organizations aim to achieve their strategic goals and objectives,
while considering such factors as market conditions, competitors, customer
wants and needs, and government requirements.

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PPM also aims to create a portal of information that covers all project-oriented
objectives and initiatives. This helps team members and key stakeholders to
easily view all key project, organizational, and performance data so they can
assess which projects help or hinder the business.
Phases of Project Portfolio Management
1. Identification: Document all ongoing and new processes and projects that
should be managed using PPM.
2. Categorization: Sort these processes and projects into appropriate
business groups or units.
3. Evaluation: Assess each process or project to determine its business value.
This evaluation should be data-driven, but you can use it on both
qualitative and quantitative variables.
4. Selection: Choose the most valuable and effective processes or projects
from the evaluation phase and create a comprehensive list.
5. Prioritization: Rank each process or project based on specific strategic
categories, such as risk vs. return, cost savings, innovation, competitive
advantage, etc. Most often, organizations determine rank using a scoring
model, which is a form of analysis in which decision-makers rate the
project on a number of questions that distinguish superior projects
(typically on a 1–5 or 0–10 scale). This score serves as a stand-in for the
value of the project to the company but also includes strategy, leverage,
and factors apart from financial measures.
6. Portfolio Balancing: Organize projects by value and create a sensible
business plan based on their prioritization.
7. Authorization: Communicate the prioritization and strategy that you
identified in the previous steps, gain approval on budget and timelines,
and allocate resources appropriately.
Project Charter
 Developing Project Charter is the process of developing a document that
formally authorizes the existence of a project and provides the project
manager with the authority to apply organizational resources to project
activities.
 The key benefits of this process are that it provides a direct link between
the project and the strategic objectives of the organization, creates a formal
record of the project, and shows the organizational commitment to the
project.
 This process is performed once or at predefined points in the project. The
inputs, tools and techniques, and outputs of the process are depicted in
Figure below

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 The project charter establishes a partnership between the performing and

requesting organizations. In the case of external projects, a formal contract
is typically the preferred way to establish an agreement.
 A project charter may still be used to establish internal agreements within
an organization to ensure proper delivery under the contract.
 The approved project charter formally initiates the project. A project
manager is identified and assigned as early in the project as is feasible,
preferably while the project charter is being developed and always prior to
the start of planning.
 The project charter can be developed by the sponsor or the project
manager in collaboration with the initiating entity. This collaboration
allows the project manager to have a better understanding of the project
purpose, objectives, and expected benefits.
 This understanding will better allow for efficient resource allocation to
project activities. The project charter provides the project manager with
the authority to plan, execute, and control the project.
 Chartering a project validates alignment of the project to the strategy and
ongoing work of the organization.
 A project charter is not considered to be a contract because there is no
consideration or money promised or exchanged in its creation.
 The project charter is the document issued by the project initiator or
sponsor that formally authorizes the existence of a project and provides
the project manager with the authority to apply organizational resources
to project activities.

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Sample Project Charter

 It documents the high-level information on the project and on the product,

service, or result the project is intended to satisfy, such as:
i) Project purpose;
ii) Measurable project objectives and related success criteria;
iii) High-level requirements;
iv) High-level project description, boundaries, and key deliverables;
v) Overall project risk;
vi) Summary milestone schedule;
vii) Preapproved financial resources;
viii) Key stakeholder list;
ix) Project approval requirements (i.e., what constitutes project success,
who decides the project is successful, and
x) who signs off on the project);
xi) Project exit criteria (i.e., what are the conditions to be met in order to
close or to cancel the project or phase);
xii) Assigned project manager, responsibility, and authority level; and

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xiii) Name and authority of the sponsor or other person(s) authorizing the
project charter.
At a high level, the project charter ensures a common understanding by the
stakeholders of the key deliverables, milestones, and the roles and
responsibilities of everyone involved in the project.
Question: Prepare a sample project charter for any of the project related to your
domain
Stages of team development
There’s a process for a team to evolve from a group of strangers to a group that
creates something good together, and that’s what the stages of team development
are all about
One of the models used to describe team development is the Tuckman ladder,
which includes five stages of development that teams may go through
Five stages are
1.Forming 2.Storming 3.Norming
4.Performing 5.Adjourning
Forming
 This phase is where the team members meet and learn about the project
and their formal roles and responsibilities. Team members tend to be
independent and not as open in this phase.
 People are still trying to figure out their roles in the group; they tend to
work independently, but are trying to get along.
Storming
• The team begins to address the project work, technical decisions, and the
project management approach. If team members are not collaborative or
open to differing ideas and perspectives, the environment can become
counterproductive.
• As the team learns more about the project, members form opinions about
how the work should be done. This can lead to temper flare-ups in the
beginning, when people disagree about how to approach the project
Norming
• team members begin to work together and adjust their work habits and
behaviors to support the team. The team members learn to trust each
other

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• As the team learns more about the other members, they begin to adjust
their own work habits to help out one another and the team as a whole.
Here’s where the individuals on the team start learning to trust one
another
Performing
• Teams that reach the performing stage function as a well-organized unit.
They are interdependent and work through issues smoothly and effectively
• Once everyone understands the problem and what the others are capable
of doing, they start acting as a cohesive unit and being efficient. Now the
team is working like a well-oiled machine.
Adjourning
• the team completes the work and moves on from the project. This typically
occurs when staff is released from the project as deliverables are completed
or as part of the Close Project or Phase process.
• When the work is close to completion, the team starts dealing with the fact
that the project is going to be closing soon.
Although this is the normal progression, it’s possible that the team can get
stuck in any one of the stages.
One big contribution you can make, as the project manager, is to help the
team get through the initial Storming phase, and into Norming and
Performing.
It’s important to keep in mind that people have a tough time creating team
bonds initially, and to try to use your soft skills to help the team to progress
through the stages quickly
Although it is common for these stages to occur in order, it is not uncommon
for a team to get stuck in a particular stage or regress to an earlier stage.
Projects with team members who worked together in the past might skip a
stage.

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