Project Evaluation

and Programme
Management
A Business Case

► Introduction and Background to the proposal

► The proposed project
► The Market
► Organizational and operational Infrastructure
► The Benefits
► Outline Implementation Plan
► Costs
► The financial Case
► Risks
Project Portfolio Management

► Project Portfolio Definition

► Project Portfolio Management
► Project Portfolio Optimization
Project Evaluation

► Evaluation of individual projects

How the feasibility of an individual project can be
evaluated.
1. Technical assessment
► Whether the required functionality can be
achieved with current affordable technologies.
► Organizational policies\
► H/W S/W infrastructure limitations
► Cost of technology adapted
Project Evaluation

► Cost-benefit analysis
Cost-benefit analysis comprises two steps-
1. Identify costs and benefits of
Developing costs
Operating costs
Benefit expected from the new system
2. Expressing above costs in common units
Express cost and benefit in terms of a common
unit.
Cont..

Expenditure
Income
Need to spend money at first (e.g. staff salary,
employment cost, hardware and software costs) no
matter where the money comes from
e.g. resources from company, or money from the bank
If the money is from bank, you need to calculate the
interest as well.
 Cost-benefit evaluation
techniques
Net Profit
Difference b/w total cost and total income
Payback Period
Time taken to pay back the initial investment
Return on Investment
Compare the net profitability to the investment required
Net Present value
Used in capital budgeting to analyze the profitability of an investment or
project.
NPV measures the total amount by which an investment is expected to
increase based on the present value of its potential cash flows and initial
cost.
Internal Rate of return
Return on investment

► ROI=average annual profit/total investment *100

50,000/100,000 * 100
year of the project is 5yrs
(50,000/5)/100,000 * 100
10%
present value=value in year t/(1+r)2
Cont..

Simple example: (where negative values represent

net expenses, positive values represent net
incomes)Assumptions:
1. Cash flow take place at the end of each year.
2. The year 0 figure represents the initial
investment made at the start of the project.
Cont..

Net profit
Advantage: simple to use
Disadvantage: ignores the timing of the cash flow
Payback period
Advantage: simple to calculate, not particular sensitive to
small forecasting errors
Disadvantage: ignores any income (or expenditure) after the
payback period
Return on Investment (ROI)
Advantage: simple and easy to calculate, quite popular
Disadvantage:
Payback period

► Let’s assume that a company invests $400,000 in

more efficient equipment. The cash savings from
the new equipment is expected to be $100,000 per
year for 10 years. The payback period is 4 years
($400,000 divided by $100,000 per year).
► A second project requires an investment of
$200,000 and it generates cash as follows: $20,000
in Year 1; $60,000 in Year 2; $80,000 in Year 3;
$100,000 in Year 4; $70,000 in Year 5. The
payback period is 3.4 years ($20,000 + $60,000 +
$80,000 = $160,000 in the first three years +
$40,000 of the $100,000 occurring in Year 4)
Cost-benefit Evaluation
Techniques – NPV
► Net present value (NPV)
Present value is the value which a future amount is worth
at present
It takes into account the profitability of a project and the
timing of the cash flows
NPV
Advantage: Takes into account the profitability of a project
and the timing of the cash flows that are produced.
Disadvantage:1. hard to select an appropriate discount rate
2. NPV might not be directly comparable with earnings
from other investments or the costs of borrowing capital.
Cost-benefit Evaluation
Techniques – NPV (cont’d)
Discount rate is the annual rate by which we discount future
earning
e.g. If discount rate is 10% and the return of an investment in a
year is $110, the present value of the investment is $100.
 Net present value

Would you rather I gave you £100 today or in 12

months time?
If I gave you £100 now you could put it in savings
account and get interest on it.
If the interest rate was 10% how much would I have to
invest now to get £100 in a year’s time?
This figure is the net present value of £100 in one
year’s time
If you invested £91 now you would get £9.10 in
interest which would give you £ in 12 months
Net present value

NPV is a project evolution technique that takes

into account the profitability and timing of the
cash flows.
Cont..

► NPV is the sum of the discounted cash flows

for all the years of the ‘project’ (note that in
NPV terms the lifetime of the completed
application is included in the ‘project’)
► The figure of £618 means that £618 more
would be made than if the money were simply
invested at 10%. An NPV of £0 would be the
same amount of profit would be generated as
investing at 10%.
Cost-benefit Evaluation
Techniques – NPV (cont’d)
► Disadvantage May not be directly comparable with earnings
from other investments or the costs of borrowing capital.
Cost-benefit Evaluation
Techniques – IRR
► Internal Rate of Return (IRR)
IRR can be used to rank several prospective projects a firm is
considering.
the project with the highest IRR would probably be considered
the best and undertaken first.
Use Excel to demonstrate the calculation of NPV and IRR. See file
‘lect03-npv.xls’.The IRR being a relative measure does not
indicate the absolute size of the return.
Cost-benefit Evaluation
Techniques – IRR (cont’d)
► Useful
Dismiss a project due to its small IRR value
Indicate further precise evaluation of a
project
Supported by MS Excel and Lotus 1-2-3
It is convenient in the sense that further
calculation are not required.
It is useful in the sense that, in many cases, it is
sufficient to dismiss a project or indicate
further investigation of a project even though it
is an approximation.
Software Effort Estimation

► Successful project is that the system is delivered on time and

within budget and with the required quality.
Software Effort Estimation

► Successful project is one delivered on time, within

budget and with the required quality.
► Project manager like Amanda has to produce estimates
of effort, which affects costs, and of activity durations,
which affect the delivery time.
Other difficulties it include are:
1. Subjective nature of estimating
2. Political implications
3. Changing technology
4. Lack of homogenity
Cont..

► Estimates are carried out at various stages of software project

► Strategic Planning
Decide priority to each project
► Feasibility Study
Benefits of potential system
► System Specification
Detailed requirement analysis at design stage.
► Evaluation of suppliers proposals
Tender management
► Project Planning
Detailed estimates of smaller work components during
implementation
Problems with over and under
estimates
► Parkinson's Law
“Given an easy target staff will work less hard”
► Brooks Law
Effort required to implement a project will go up
disproportionately with the number of staff assigned to
the project.
“Putting more people on a late job makes it later”.
The basis for software
estimating
► The need for historical data
► Measure of work
Software effort estimation
techniques
► Algorithmic Models
► Expert Judgment
► Analogy – similar completed project
► Parkinson – staff effort available to do project
► Price to win – sufficiently low to win a contract
► Top-down – overall estimate is formulated
► Bottom-up – individual components are aggregated.
Bottom-up estimating

► Work breakdown structure

► Assumptions about characteristics of final system
► Number and size of software modules
► Appropriate at detailed stages of project planning
► When a project is completely novel or no historical data
available.
A procedural code-oriented
approach
► Envisage the number and type of software modules in the final
system
► Estimate the SLOC of each identified module
► Estimate the work content, taking into account complexity and
technical difficulty
► Calculate the work-days effort
The top-down approach and
parametric models
► Effort = (system size) * (productivity rate)
► System size in the form of KLOC
► Productivity rate 40 days per KLOC
► Software module to be constructed is 2KLOC
► Effort = 2*80 = 160days

Note:
KLOC – Thousand lines of code
Expert Judgement

► Asking for estimate of task effort from someone who is

knowledgeable about either application or development
environment.
► Experts use the combination of informal analogy approach
where similar projects from past are identified and bottom up
estimating.
Estimating by Analogy

► Called “case based analogy”.

► Estimator identifies completed projects source cases with
similar characteristics to new project(target case).
► Effort of the source case used as base estimate for target.
► TOOL – ANGEL software tool.
► Measuring Euclidean Distance between the cases.
► Euclidean distance is calculated as
Distance=square-root of((target_parameter1-
source_parameter1)2+…(target_parametern-
source_parametern)2)
problem

► 7 inputs and 15 outputs project A

► 8 inputs and 17 outputs project B
Distance=square root of((7-8)2+(17-15)2)

► 2.24
Activity Planning

► Introduction
A detailed plan for the project must also include a schedule indicating
the start and completion times for each activity.
► Ensure that the appropriate resources will be available precisely
when required;
► Avoid different activities competing for the same resources at the
same time;
► Produce a detailed schedule showing which staff carry out each
activity;
► Produce a detailed plan against which actual achievement may be
measured;
► Produce a timed cash flow forecast;
► Replan the project during its life to correct drift from the target.
Cont…

► To be effective, a plan must be stated as a set of

targets, the achievement or non-achievement of which
can be unambiguously measured.
► The activity plan does this by providing a target start
and completion date for each activity.
► The starts and completions of activities must be clearly
visible and this is one of the reasons why it is advisable
to ensure that each and every project activity produces
some tangible product or deliverable.
The Objectives of Activity
Planning
► Feasibility assessment is the project possible within
required timescales and resource constraint?
However, it is not until we have constructed a detailed
plan that we can forecast a completion date with any
reasonable knowledge of its achievability.
► Resource allocation what are the most effective ways of
allocating resources to the project. When should the
resources be available? The project plan allows us to
investigate the relationship between timescales and
resource availability.
Cont..

► Detailed costing How much will the project cost and

when is that expenditure likely to take place? After
producing an activity plan and allocating specific
resources, we can obtain more detailed estimates of
costs and their timing.
► Motivation providing targets and being seen to monitor
achievement against targets is an effective way of
motivating staff, where they have been involved in
setting those targets in the first place.
Cont..

► Coordination when do the staff in different departments

need to be available to work on a particular project and
when do staff need to be transferred between projects?
The project plan, particularly with large projects
involving more than a single project team, provides an
effective vehicle for communication and coordination
among teams.
Cont..

► Activity planning and scheduling techniques place an

emphasis on completing the project in a minimum time
at an acceptable cost or, alternatively, meeting a set
target date at minimum cost.
When to plan

► Planning is an on going process of refinement, each

iteration becoming more detailed and more accurate
than the last. Over successive iterations, the emphasis
and purpose of planning will shift.
► The main purpose of planning will be to estimate
timescales and the risks of not achieving target
completion dates or keeping within budget.
Project schedules
Cont..

► A project schedule is a detailed project plan showing

dates when each activity should start and finish and
when and how much of each resource will be required.
► Creating a project schedule comprises of four main
stages:
► Constructing an ideal activity plan
what activities need to be carried out and in what
order.
► Risk analysis
identifying potential problems
Cont..

► Resource allocation
The expected availability of resources might place
constraints on when certain activities can be carried out.
► Schedule Production
Once resources have been allocated to each activity,
we will be in a position to draw up and publish a project
schedule, which indicates planned start and completion
dates and a resource requirements statement for each
activity.
Projects and Activites

► Defining Project and activities

A project is composed of a number of
interrelated activities.
A project may start when at least one of its
activities is ready to start.
A project will be completed when all of the
activities it encompasses have been completed.
An activity must have a clearly defined start and
a clearly defined end-point.
If an activity requires a resource then that
resource requirement must be forecastable.
Identifying Activites

► Activity – based approach

► The product-based approach

► Hybrid approach
The Activity-Based Approach

► Consists of creating a list of all activities

A brainstorming session involving the whole project
team
An analysis of past projects
► When listing activities, it might be helpful to sub-divide
the project into the main life-style stages and consider
each of these separately.
Work Breakdown
Structure[WBS]
► Creating a WBS is a much favoured way of generating a
task list.
► Involves identifying the main(or high level) tasks
required to complete a project and then breaking each
of these down into a set of lower-level tasks.
Cont..

► Need to consider the final level of detail or depth of the

structure
Too great of depth will result in a large number of small
tasks
Too shallow structure will provide insufficient detail for
project control
Each branch should be broken down at least to a leaf
where each leaf may be assigned to an individual or
responsible team.
The Product-Based Approach

► Consists of producing a product breakdown structure(PBS)

and product flow diagram(PFD)
► The PFD indicates for each product which other products
are required as inputs.
Easily transformed into an ordered list of activities
► Proponents claim that it is less likely that a product will be
left out of a PBS than that an activity might be omitted
from an unstructured activity list.
► Particularly appropriate if using a life cycle methodology
such as waterfall
Clearly specifies for each step or task each of the products
required and the activities required to produce it.
The Hybrid Approach

► An alternative WBS based on

1. A simple list of final deliverables
2. For each deliverable, a set of activities required to
produce that product
► As with a purely activity-based WBS, having identified
the activities, we are then left with the task of
sequencing them.
The Hybrid Approach

► IBM recommended the following five levels

1. Level 1: Project
2. Level 2: Deliverables
3. Level 3: Components
4. Level 4: Work-packages
5. Level 5: Tasks
 Sequencing and Scheduling
Activities
ask:per we
on eks
1 2 3 4 5 6 7 8 9 10 11 12 13
:Andy
Andy
:Andy
:Andy
Bill
Bill
:Charli

:Charli

Dave
Cont..

Activity Key
A: Overall design
B: Specify module 1
C: Specify module 2
D: Specify module 3
E: Code module 1
F: Code module 3
G: Code module 2
H: Integration testing
I: System testing
Cont..
►Throughout a project we require a schedule that clearly indicates when
each of the projects activities is planned to occur and what resources it
will need.
► The chart shown has been drawn up taking account of the nature of the
development process and the resources that are available.
► In drawing the chart two things are considered sequencing the tasks and
scheduling them.
► In case of small projects this combined sequencing-scheduling approach
might be quite suitable, particularly we wish to allocate individuals to
particular tasks at an early planning stage.
Network planning models

► Sequencing the tasks according to their logical

relationship and then scheduling them taking into
account resources and other factor
► Modelling the projects activities and their relationship
as a network
1. Time flows from left to right
2. Originally developed in 1950s
3. Two best known: CPM and PERT
 Forward Pass
► Forward pass is carried out to calculate the earliest dates on which each
activity may be started and completed.
► An actual start date is known the calculations may be carried out using
actual dates. We can use day or week numbers and that approach shall
adopt here.
► Dates indicate the end of a period and the project is therefore shown as
starting at the end of week zero.
The forward pass and the calculation of earliest start dates are carried out
according to the following reasoning
1. Activities A, B and F may start immediately, so the earliest date for their
start is zero
2. Activity A will take 6 weeks, so the earliest it can finish is week 6
3. Activity B will take 4 weeks, so the earliest it can finish is week 4
4. Activity F will take 10 weeks, so the earliest it can finish is week 10
 Cont..
5. Activity C can start as soon as A has finished so its earliest start date is week
6. It will take 3 weeks so the earliest it can finish is week 9.
6. Activities D and E can start as soon as B is complete so the earliest they can
each start is week 4. Activity D, which will take 4 weeks, can therefore
finish by week 8 and activity E, which will take 3 weeks, can therefore
finish by week 7.
7. Activity G cannot start until both E and F have been completed. It cannot
therefore start until week 10 – the later of weeks 7 and 10. It takes 3
weeks and finishes in week 13.
8. Similarly, Activity H cannot start until week 9 – the later of the two earliest
finish dates for the preceding activities C and D.
9. The project will be complete when both activities H and G have been
completed. Thus the earliest project completion date will be the later of
weeks 11 and 13 – that is week 13.
Cont..
The Backward Pass
Cont..
Activity Float

► The total float is shown for each activity, it belongs to a

path through the network.
Number of measures of activity float include the following
1. Free float: the earliest completion date for the activity
and the earliest start date of the succeeding activity.
2. Interfering float: the difference between total float and
free float.
Shortening the project
duration
► Shorten the overall duration of a project would
normally consider attempting to reduce activity
durations.
► As we reduce activity times along the critical path we
must continually check for any new critical path
emerging and redirect our attention where necessary.
Identifying critical activities

► The critical path identifies those activities which are

critical to the end date of the project; activities that
are not on the critical path may become critical.
► The importance of identifying critical and near-critical
activities is that they are most likely to be the cause of
delays in completing the project.
Activity-on-arrow network
rules and conventions
► A project network may have only one start node
► A project network may have only one end node
► A link has duration
► Nodes have no duration
► Time moves from left to right
► Nodes are numbered sequentially
► A network may not contain loops
► A network may not contain dangles
Cont..
Cont..
Cont..
Cont..
Using dummy activities

► When two paths within a network have a common event

although they are, in other respects, independent, a
logical error.
► Before coding the software it is also necessary to
specify the appropriate data structures, although
clearly we do not need to wait for this to be done
before the hardware is ordered.
Cont..
Cont..
Cont..
Activity Labelling

► There are number of differing conventions that have

been adopted for entering information on an activity-
on-arrow network.
Network analysis

► The forward pass is carried out to calculate the earliest date on

which event may be achieved and the earliest dates on which each
activity may be started and completed.
1. Activities A, B and F may start immediately, so the earliest date for
event 1 is zero and the earliest start date for these three activities is
also zero.
2. Activity A will take 6 weeks, so the earliest it can finish is week 6.
Therefore the earliest we can achieve event 2 is week 6.
3. Activity B will take 4 weeks, so the earliest it can finish and the
earliest we can achieve event 3 is week 4.
4. Activity F will take 10 weeks, so the earliest it can finish is week 10 –
we cannot however, tell whether or not this is also the earliest date
that we can achieve event 5 since we have not, as yet calculated
when activity E will finish.
Cont..

5. Activity E can start as early as week 4 and since it is

forecasted to take 3 weeks, will be completed, at the
earliest, at the end of week 7.
6. Event 5 may be achieved when both E and F have been
completed, that is, week 10.
7. similarly, we can reason that event 4 will have an
earliest date of week 9. This is the later of the earliest
finish for activity D and the earliest finish for activity C.
8. The earliest date for the completion of the project,
event 6, is therefore the end of week 13 – the later of11
and 13.