Chapter 2: Project

evaluation and
programme
management
NET481: Project Management

Afnan Albahli

"
 Main topics to be covered

 The business case for a project

 Project portfolios

 Project evaluation
 Cost benefit analysis
 Cash flow forecasting

 Programme management

 Benefits management

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 The business case

 Feasibility studies can also act as a ‘business case’

 Provides a justification for starting the project

 Should show that the benefits of the project will exceed

development, implementation and operational costs

 Needs to take account of business risks

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 Contents of a business case

1. Introduction/ background 5. The benefits

2. The proposed project 6. Outline implementation

plan
3. The market
7. Costs
4. Organizational and
operational infrastructure 8. The financial case

9. Risks

10. Management plan

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 Content of the business case

 Introduction/background: describes a problem to be solved

or an opportunity to be exploited

 The proposed project: a brief outline of the project scope

 The market: the project could be to develop a new product

(e.g. a new computer game). The likely demand for the
product would need to be assessed.

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 Content of the business case - continued

 Organizational and operational infrastructure: How the

organization would need to change. This would be
important where a new information system application was
being introduced.
 Benefits These should be express in financial terms where
possible. In the end it is up to the client to assess these – as
they are going to pay for the project.

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 Content of the business case - continued

 Outline implementation plan: how the project is going to

be implemented. This should consider the disruption to an
organization that a project might cause.

 Costs: the implementation plan will supply information to

establish these

 Financial analysis: combines costs and benefit data to

establish value of project

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 Project portfolio management

The concerns of project portfolio management include:

 Evaluating proposals for projects

 Assessing the risk involved with projects

 Deciding how to share resources between projects

 Taking account of dependencies between projects

 Removing duplication between projects

 Checking for gaps

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 Project portfolio management - continued

There are three elements to PPM:

1. Project portfolio definition

 Create a central record of all projects within an organization
 Must decide whether to have ALL projects in the repository
or, say, only ICT projects
 Note difference between new product development (NPD)
projects and renewal projects e.g. for process improvement

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 Project portfolio management - continued

2. Project portfolio management

Actual costing and performance of projects can be recorded and assessed

3. Project portfolio optimization

Information gathered above can be used achieve better balance

of projects e.g. some that are risky but potentially very valuable
balanced by less risky but less valuable projects

You may want to allow some work to be done outside the portfolio e.g.
quick fixes
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 Cost benefit analysis (CBA)

This relates to an individual project. You need to:

 Identify all the costs which could be:

 Development costs
 Set-up
 Operational costs

 Identify the value of benefits

 Check benefits are greater than costs

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 Product/system life cycle cash flows

 The timing of costs and income for a product of system needs to be

estimated.

 The development of the project will incur costs.

 When the system or product is released it will generate income

that gradually pays off costs
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 Net profit

Year Cash-flow
‘Year 0’ represents all the costs
0 -100,000
before system is operation
1 10,000
‘Cash-flow’ is value of income less
2 10,000 outgoing

3 10,000 Net profit value of all the cash-

flows for the lifetime of the
4 20,000 application

5 100,000

Net profit 50,000 SPM (5e) Project evaluation and

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 Pay back period
This is the time it takes to start generating a surplus of income over
outgoings. What would it be below?

Year Cash-flow Accumulated

0 -100,000 -100,000

1 10,000 -90,000

2 10,000 -80,000

3 10,000 -70,000

4 20,000 -50,000

5 100,000 50,000
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 Return on investment

 Provides a way of comparing the net profitability to the

investment required

 ROI = average annual profit / total investment * 100

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 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

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 Discount factor

Discount factor = 1/(1+r)t

r is the interest rate (e.g. 10% is 0.10)
t is the number of years

In the case of 10% rate and one year

Discount factor = 1/(1+0.10) = 0.9091

In the case of 10% rate and two years

Discount factor = 1/(1.10 x 1.10) =0.8294

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 Applying discount factors

Year Cash-flow Discount factor Discounted cash flow

0 -100,000 1.0000 -100,000

1 10,000 0.9091 9,091
2 10,000 0.8264 8,264
3 10,000 0.7513 7,513

4 20,000 0.6830 13,660

5 100,000 0.6209 62,090

NPV 618
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 Internal rate of return

 Internal rate of return (IRR) is the discount rate that would

produce an NPV of 0 for the project

 Can be used to compare different investment opportunities

 There is a Microsoft Excel function which can be used to

calculate

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 Dealing with uncertainty: Risk evaluation

 project A might appear to give a better return than B but

could be riskier

 Could draw up draw a project risk matrix for each project to

assess risks – see next overhead

 For riskier projects could use higher discount rates

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Example of a project risk
matrix

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 Programme management

 One definition:

‘a group of projects that are managed in a co-ordinated way to

gain benefits that would not be possible were the projects to be
managed independently’ Ferns

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 Programmes may be

 Strategic

 Business cycle programmes

 Infrastructure programmes

 Research and development programmes

 Innovative partnerships

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Programme managers versus project managers

Programme manager Project manager

 Many simultaneous  One project at a time
projects  Impersonal relationship
 Personal relationship with with resources
skilled resources  Minimization of demand
 Optimization of resource for resources
use  Projects tend to be seen as
 Projects tend to be seen as unique
similar

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 Strategic programmes

 Based on OGC approach

 Initial planning document is the Programme Mandate describing

 The new services/capabilities that the programme should deliver
 How an organization will be improved
 Fit with existing organizatioal goals

 A programme director appointed a champion for the scheme

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 Next stages/documents

 The programme brief – equivalent of a feasibility study:

emphasis on costs and benefits

 The vision statement – explains the new capability that the

organization will have

 The blueprint – explains the changes to be made to obtain

the new capability

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 Benefits management

developers users organization

use for

the
benefits
build application to
deliver

•Providing an organization with a capability does not guarantee

that this will provide benefits envisaged – need for benefits
management
•This has to be outside the project – project will have been
completed
•Therefore done at programme level SPM (5e) Project evaluation and
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 Benefits management

To carry this out, you must:

 Define expected benefits

 Analyse balance between costs and benefits

 Plan how benefits will be achieved

 Allocate responsibilities for their achievement

 Monitor achievement of benefits

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 Benefits

These might include:

 Mandatory requirement

 Improved quality of service

 Increased productivity

 More motivated workforce

 Internal management benefits

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 Benefits - continued

 Risk reduction

 Economies

 Revenue enhancement/acceleration

 Strategic fit

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 Quantifying benefits

Benefits can be:

 Quantified and valued e.g. a reduction of x staff saving £y

 Quantified but not valued e.g. a decrease in customer

complaints by x%

 Identified but not easily quantified – e.g. public approval for

a organization in the locality where it is based

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 Remember!

 A project may fail not through poor management but because it

should never have been started

 A project may make a profit, but it may be possible to do

something else that makes even more profit

 A real problem is that it is often not possible to express benefits in

accurate financial terms

 Projects with the highest potential returns are often the most risky

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