7.

Project Life Cycle: Projects progress through distinct

phases, with tasks, resources, and stakeholders
changing as the project advances.

Characteristics of Project Management:

1. Project Manager Leadership: A single person, the
project manager, leads the project independently of the
usual organizational hierarchy, reflecting the cross-
functional and temporary nature of projects.
2. Central Coordination: The project manager
coordinates all efforts to achieve the project's
What is a project? objectives.
3. Diverse Skills and Resources: Project work often
Characteristics of a Project: involves people from various functional areas or
1. Single, Definable Purpose: A project has a clear and external contractors, requiring a range of skills and
specific objective, with deliverables defined in terms of resources.
cost, schedule, and performance requirements. 4. Integration of Efforts: The project manager is
2. Uniqueness: Each project is unique, involving tasks responsible for integrating the work of different
that differ from previous activities, even in routine functional areas and contractors involved in the project.
projects like construction. 5. Negotiation with Functional Managers: The project
3. Temporary Activity: Projects are temporary, involving manager negotiates directly with functional managers
an ad hoc assembly of resources that disbands once the who control the resources and personnel needed for the
goal is achieved. project.
4. Cross-Functional: Projects cut across organizational 6. Focus on Delivery: While the project manager is
and functional lines, requiring skills and expertise from focused on delivering the project within a specific time
multiple areas. and budget, functional managers must balance ongoing
5. Involves Risk and Unfamiliarity: Due to their unique organizational needs, which can lead to conflicts over
nature, projects often involve new technology, resource allocation.
processes, and significant elements of risk and 7. Dual Reporting: Team members in a project may have
uncertainty. two reporting lines—one to the project manager and
6. Organizational Stake: The organization undertaking another to their functional manager.
the project has something significant at stake, with 8. Shared Responsibilities: Decision-making,
failure potentially jeopardizing its goals. accountability, outcomes, and rewards are shared
 between the project team and the supporting functional
units.
9. Temporary Organization: Although the project
organization is temporary, the functional or
subcontracting units from which it is formed are
permanent, and team members return to their original
units once the project concludes.
10 .Activation of Supporting Functions: Project
management triggers activities across various supporting
functions, including HR, accounting, procurement, and IT.

THE IMPORTANCE OF PROJECT MANAGEMENT

Project management has five interrelated processes;
1. Initiating
2. Planning
3. Executing
4. Monitoring and Controlling
5. Closing
METHODS FOR INDIVIDUAL PROJECT ANALYSIS ->

.A ] financial Models

 Net Present Value (NPV): Evaluates the project’s

profitability by calculating the present value of future
cash flows minus the initial investment.
 Return on Investment (ROI): Measures the expected
return relative to the project's cost.

 Payback Period method for evaluating project

investments based on how quickly they can recover
their initial costs through generated cash flows.
Lower payback period
 expected commercial value (ECV) :  ECV involves
estimating the future financial benefits (revenues, cost
savings, etc.) that a project is expected to generate.

Projects with higher ECV values are prioritized as they

are expected to deliver greater financial value to the
organization.

 Cost-Benefit Analysis: Compares the projected costs

and benefits to assess overall value.

The Main Weaknesses of Financial Models in Project

Value

 Estimates are Unreliable:

o Financial models for projects rely heavily on
guesses or estimates.
o These estimates include development costs, future
earnings, and how likely certain things are to
happen.
o When a project is just an idea, there isn't enough
real data to make accurate estimates.
o Supporters of a project often make these
estimates look better than they are by saying
 costs will be lower and benefits will be special interpretation, difficult-to-acquire data, or
higher. excessive resources.
 Focus Only on Money: 5. Cost: The costs associated with data gathering and
modeling should be low relative to the project costs and
less than the potential project benefits.
B] Scoring Models 6. Easy Computerization: The model should allow for
Scoring models rate projects in terms of multiple criteria easy data storage and manipulation using standard
that include quantifiable measures as well as non- computer software, such as Excel.
quantifiable ones such as market risk, fit with company
mission and goals, customer excitement, and so on.

Project selection Methods ->

1.Single-Criterion Methods
Single-criterion methods focus on using one main factor to
decide which projects to choose. They rank projects based
on this factor, like financial returns or a score from a model.
Here’s how they work and their pros and cons:

The project selection criteria involve the following How Single-Criterion Methods Work:
key considerations:
1. Realism: The model should accurately represent the 1. Ranking Projects:
firm's decision-making process by considering company o Projects are ranked based on a single measure,
goals, limitations, and risks like performance, cost, and such as Benefit/Cost Ratio (B/C), Expected
implementation challenges. Commercial Value (ECV), or a scoring system.
2. Capability: The model should be advanced enough to 2. Selection Process:
handle multiple time periods and various internal and o The highest-ranked projects are chosen first,
external project situations, such as strikes or changes in depending on how well they score on the selected
interest rates. criterion.
3. Flexibility: The model should provide valid results o This selection is done as long as there are enough
under different conditions and be easy to modify based resources available to support these projects.
on changes in the firm's environment, like tax law 3. Screening Threshold:
changes or technological advancements.
4. Ease of Use: The model should be convenient, quick to A minimum value threshold can be applied for screening
execute, and easy to understand, without requiring projects; for example, any proposal having a B/C ratio of less
than 1.5 or a score of less than 50 percent maximum 

(200/400 in Table 17-1 ) is rejected immediately.

Advantages:

 Simplicity: These methods are easy to understand and

apply, making them accessible for decision-makers.
 Quick Decision-Making: They provide a clear way to
prioritize projects based on a single important factor,
like financial profitability or strategic alignment.
 Allows Sensitivity Analysis: Some methods can
analyze how changes in assumptions (like revenue
decrease or cost increase) affect project outcomes.

Limitations:

 Risk of Inaccuracy: Relies heavily on estimates for 

costs, benefits, and probabilities, which can be 2. Multiple-Criteria Methods
unreliable.  Multiple-criteria methods offer a robust approach to
 Assumptions: Often based on assumptions that might project evaluation by integrating various factors that
not always be correct, leading to potentially wrong contribute to project success and alignment with
conclusions. corporate goals. By considering factors beyond financial
 Comparative Size Issues: Assumes all projects are returns alone, organizations can make more informed
similar in scale, which may overlook smaller projects decisions that support their long-term objectives
with high returns compared to larger ones with lower and overall strategy.
returns.
 considered for selection, promoting a more holistic
approach to decision-making.

Optimal Balance and Alignment: While these methods

consider various criteria, they alone may not guarantee
alignment with organizational strategies. Additional
strategic considerations and trade-offs may still be
required.

3.Strategic Fit
 In Table 17-2, each project is rated based on three
Why Strategic Fit Matters:
criteria:
o Fit with Corporate Strategy: Rated subjectively
 Organizations need to ensure that their projects help
from 0 (poor fit) to 4 (perfect fit). achieve their larger goals. By focusing on strategic
o Reward (ECV): Calculated from financial models,
fit, companies can prioritize projects that support their
indicating the expected commercial value. mission, vision, and long-term strategy, making the best
o Risk: Subjectively rated from 0 (no risk) to 4 (high
use of limited resources
risk).
Importance of Alignment:
**3. Project Evaluation:
 Strategic fit involves selecting projects that directly
 Example: contribute to achieving the organization's mission,
o Project Adrastea has ratings of 5 for Strategic Fit, 4
goals, and strategic initiatives. It ensures that resources
for ECV, and 4 for Risk. are allocated wisely to support the organization's
o The Ranking Score is computed as the mean of
fundamental, long-term goals
these ratings: (5 + 4 + 4) / 3 = 4.33.
o This places Project Adrastea 7th in the How Projects Are Categorized:
ranking.
 Projects are grouped into categories to better manage
. Advantages of Multiple-Criteria Methods: them and align with strategic objectives. These
categories might include:
 Comprehensive Assessment: Considers multiple o Strategic Goals: Projects focused on defending
dimensions simultaneously, ensuring a balanced market share, growing new markets, or diversifying
evaluation beyond just financial metrics. products.
 Flexibility: Allows for the inclusion of additional o Product Lines: Projects related to specific
criteria as needed to reflect organizational priorities. products or services.
 Retention of Good Projects: Ensures that projects o Project Types: Different kinds of projects such as
meeting criteria across multiple dimensions are R&D (research and development), capital
 improvements, process improvements, and new  Execution depends on the availability of these key
product development. resources, so not all approved projects can start
o Geographical Regions: Projects targeted at immediately.
different locations, such as Toronto, California, or
Indonesia. **6. Challenges and Adjustments:
o Business Units: Projects managed by different
departments like marketing, manufacturing, or  Debates Over Funding: There can be disagreements
product development. about how much funding each category should receive,
especially if it appears to misalign with the
Allocating Resources: organization’s overall mission.

 Each category is given a budget based on its strategic 4. Cost–Benefit Grids

importance. This ensures that resources are allocated A method well suited for prioritizing and selecting projects
where they can best contribute to the organization's according to several criteria is Buss ’ s cost–benefit grid.
goals. For instance, if an organization wants to focus on
These grids help visualize and compare different
expanding a product line, it might allocate more
projects, making it easier to decide which ones to
funds to projects related to that line.
pursue.
4. Reviewing and Approving Projects: Suppose two important criteria are financial benefits and
 In Large Organizations: Each category might have its project cost.
own Project Review Board (PRB) to evaluate and The PRB reviews each project proposal and rates the
approve projects.
 In Small Organizations: There might be a single project ’ s
portfolio managed by one group. financial benefits as high, medium, or low, and
 The PRBs or management teams look at all proposed
projects, rank them based on their strategic fit and its cost as high, medium, or low.
potential return, and approve as many projects as the The result is a visual representation where projects are
budget allows. The highest-ranked projects are funded placed in a 3x3 grid showing their relative cost and benefit.
first until the budget is used up.
When several projects are rated in this way, the result looks
**5. Managing Resources and Execution: like Grid
 Approved projects are placed in a queue and are
scheduled to start once the necessary resources (like
people, equipment, or money) are available.
 projects with high financial benefits might be
ranked higher even if they are not favorable in other
grids.

6. Advantages:

 Clear Comparison: Provides a clear visual

comparison of projects based on cost and benefits.
 Team Judgment: Utilizes collective team judgment,
bringing in diverse perspectives.
 Adaptability: Can incorporate both subjective
judgments(personal opinions,intuition) and
formal analysis.

**7. Challenges:

 Subjectivity: Relying on subjective judgment can

introduce biases.
 Complexity: Managing multiple grids for various
criteria can become complex.
Projects offer high benefits at a low cost. are usually
 Data Dependence: Even formal analysis can be based
prioritized higher on estimates or guesses, which might not always be
 tep 3: Additional Grids: accurate.

 The same process is repeated for other criteria such as

technical benefits, intangible benefits, fit with company
strategy, etc.
 Each criterion gets its own grid, and projects are plotted 5. Cost-Effectiveness Analysis
accordingly. Cost-effectiveness analysis is similar to the cost–benefit grid
 Step 4: Ranking Projects: method but uses numerical values for cost and
benefits
 After rating projects on all grids, the team creates a
The term “ effectiveness, ” which refers to the degree to
rank-ordered list based on their positions in the grids.
which a project is expected to fulfill project
 Projects in favorable cells across most criteria are
typically ranked higher. requirements, is interchangeable with the terms “ benefits
 Organizational priorities also influence the final ranking. ” , “ value ” , “ utility , “ efficiency ” , and “ performance ” .
For instance, if financial return is a top priority,
Effectiveness refers to how well a project meets its 

intended objectives. It's similar to terms like benefits, value,

utility, efficiency, and performance.
To assess effectiveness, multiple factors are considered. For
example, in evaluating commercial aircraft, factors might
include:

 Passenger capacity
 Passenger comfort
 Aircraft weight
 Range
 Speed
 Fuel efficiency Analyzing Cost-Effectiveness
 Maintainability

Scoring and Weighting

 Step 1: Score Factors:

o Each project is scored on each factor using a
scale from 0 to 100, where 100 represents
maximum effectiveness.
 Step 2: Weight Factors:
o Each factor is given a weight based on its
importance. For example, passenger capacity
might be more important than fuel efficiency for a
certain airline.
 Step 3: Calculate Weighted Effectiveness:
o Multiply each score by its corresponding weight to
get the weighted effectiveness (WE) for each
factor. WE = weight * E
o Sum these values to get the total weighted
effectiveness for each project.
 Step 4: Compare Costs:
o Plot each project's total weighted effectiveness
against its cost to visualize and compare their cost-
effectiveness.
 o Identify projects that are both costly and less Challenges:
effective (which might be dropped) and those that
are cost-effective (which should be prioritized).  Complexity: Involves detailed scoring and weighting of
multiple factors.
Cost-Effectiveness Graph:  Subjectivity: Relies on judgments to determine scores
and weights, which can introduce biases.
Projects are plotted on a graph with cost on the x-axis and  Data Reliability: Requires accurate data for cost and
total weighted effectiveness on the y-axis. effectiveness, which might be hard to obtain.
 Projects that offer higher effectiveness for lower cost Project Initiation
are considered better. Project Initiation: Overview and Process
 "Efficient Frontier": Represents the line of maximum Purpose and Activities:
effectiveness for a given cost. Projects on this line 1. Identification of Business Problem or
are the most cost-effective. Opportunity: The initiation phase begins by
 Projects below the efficient frontier are less desirable recognizing a business need, problem, or opportunity
because they offer lower effectiveness for their that warrants investigation.
cost compared to others. 2. Solution Definition: A potential solution to the
identified problem is outlined, leading to the formation
4. Decision-Making: of a project.
 Projects Below Threshold: Drop projects that fall 3. Project Formation: A project is established, and a
below a minimum effectiveness threshold. project team is appointed to develop and deliver the
 Trade-Offs: Analyze trade-offs between cost and solution.
effectiveness. For example, a slightly more effective 4. Business Case Development: A business case is
project that costs much more may not be worth created to detail the problem or opportunity, propose a
pursuing. solution, and justify the project to management for
 Final Selection: Prioritize projects that provide the approval.
best balance of cost and effectiveness, Key Steps in Project Initiation:
considering organizational priorities. 1. Initial Investigation:
o Fact-Finding: Conduct interviews, gather data,

Advantages: and review documentation to understand the

problem.
 Quantitative Comparison: Uses numerical values o Problem Statement: Clearly define the problem.
for a clear comparison. o Objectives: Establish goals for addressing the
 Comprehensive Evaluation: Considers multiple problem.
factors to provide a thorough analysis. o Alternative Solutions: Identify and evaluate
 Efficient Resource Use: Helps in choosing projects potential solutions, including their costs, benefits,
that maximize benefits for the least cost. and weaknesses.
 o Stakeholder Identification: Identify individuals o Assign a project manager to oversee the project
and organizations affected by the problem and and establish their authority level.
potential solutions. Outputs of Project Initiation:
2. Recognition of Need: 1. Project Charter: Officially authorizes the project and
o Perceived Needs: Identify problems and potential aligns it with organizational objectives.
solutions, often spurred by inefficiencies or 2. Stakeholder Register: Lists all stakeholders, their
outdated methods. roles, and plans for engaging them.
o Vision Statement: Align stakeholders around a 3. Initial Scope Statement: Defines the project’s scope
unified understanding of the project’s goals and and deliverables.
scope, often expressed as a vision. 4. Business Case: Provides a detailed analysis of the
3. Business Case Preparation: project’s benefits, costs, and risks, guiding decision-
o Focus on the business aspects, avoiding technical making.
details, and address management concerns about Benefits of Project Initiation:
financial and business risks.  Clarity and Direction: Establishes clear objectives,
4. Feasibility Study: scope, and goals for the project.
o Conduct a detailed investigation to assess the  Stakeholder Alignment: Ensures stakeholder buy-in
economic viability of the project, considering and shared understanding.
alternative solutions and their potential benefits.  Resource Allocation: Secures the necessary resources
o This step is critical for determining whether the and funding.
project is worth pursuing.  Risk Mitigation: Identifies and plans for potential risks
5. Project Charter Development: early.
o The project charter formalizes management’s Challenges in Project Initiation:
approval, authorizing the project and empowering  Ambiguous Objectives: Lack of clarity can lead to
the project manager. misunderstandings and scope creep.
6. Stakeholder Identification and Management:  Stakeholder Resistance: Resistance to change or
o Identify all stakeholders, both internal and conflicting interests can impede progress.
external, and establish communication strategies  Resource Constraints: Securing sufficient resources
tailored to their influence and interest in the and funding may be difficult.
project. Project Charter
7. Initial Project Scope Establishment: Develop Project Charter: a document that formally
o Define the project’s boundaries, including what is authorizes a project and grants the project manager
included and excluded, and list the initial authority to use resources.
deliverables.
Strategic Alignment: Connects the project directly to the
8. Funding and Resource Allocation:
o Secure approval for the project budget and allocate
organization's strategic objectives.
necessary resources. Formal Record: Establishes a documented, official record
9. Project Manager Appointment: of the project.
 Organizational Commitment: Demonstrates the
organization's support and resource allocation for the
project.
Timing: Performed once during project initiation or at
predefined points.
 o Include customers who benefit from the project or
contractors working on it, usually based on
contractual agreements.
Stakeholder Management:
 Different stakeholders have different goals; for
example, end-users may focus on usability, while their
managers may prioritize cost savings.
 The project leader needs to be a skilled communicator
and negotiator to balance these interests.
 Theory W (Win-Win) suggests that project success
depends on creating a situation where all stakeholders
benefit.
 It’s essential not to overlook any important stakeholder
group, especially in unfamiliar contexts.
Communication Plan:
 A communication plan should be established at the start
of the project to coordinate stakeholder efforts
effectively.

Stakeholder identification
Stakeholder identification and analysis
Identify Stakeholders Process
Stakeholders Overview: Purpose: Identify and analyze stakeholders regularly to
 Stakeholders are people with an interest in or impact document their interests, involvement, interdependencies,
on the project, and it's crucial to identify them early to influence, and potential impact on project success.
establish effective communication.  Key Benefit: Enables the project team to focus on
Types of Stakeholders: engaging each stakeholder or group of stakeholders
1. Internal Stakeholders: effectively.
o Directly involved in the project and managed by  Frequency: Performed periodically throughout the
the project leader. project, particularly at the start of each phase or when
2. External Stakeholders Within the Organization: significant changes occur.
o Not part of the project team but within the  Timing: Often first conducted before or simultaneously
organization, like users assisting in system testing. with the development and approval of the project
Their involvement needs to be negotiated. charter, and repeated as necessary.
3. External Stakeholders Outside the Organization:  Consultation: During each iteration, the project
management plan components and project documents
should be reviewed to identify relevant stakeholders.
 Stakeholder Cube: A 3D model combining
grid elements for multidimensional
stakeholder analysis.
 Salience Model: Assesses stakeholders
based on power, urgency, and legitimacy.
 Directions of Influence: Classifies
Identify Stakeholders: Tools and Techniques stakeholders by their influence direction
1. Expert Judgment: (upward, downward, outward, sideward).
o Involves expertise from individuals or groups with  Prioritization: Prioritizes stakeholders for
specialized knowledge in organizational politics, large or complex projects with changing
environment, culture, industry knowledge, and relationships.
team member expertise. 5. Meetings:
2. Data Gathering: o Used for understanding stakeholders through
o Questionnaires and Surveys: Used for collecting workshops, small group discussions, or virtual
information through reviews, focus groups, or mass meetings to share ideas and analyze data.
data collection. Stakeholder analysis
o Brainstorming: Gathers ideas from groups to
identify stakeholders. Stakeholder analysis involves collecting information about
o Brain Writing: Allows individual idea generation individuals or groups impacted by or capable of impacting
before group discussions, using either face-to-face the project. This analysis helps in identifying stakeholders
or virtual environments. and understanding their needs and expectations.
3. Data Analysis: 1. Develop a Stakeholder List:
o Stakeholder Analysis: Identifies stakeholders o Identify all individuals, groups, and organizations
and assesses their positions, roles, stakes, that provide resources or have a vested interest in
expectations, and attitudes. Key stakes include the project's success or failure.
interest, rights, ownership, knowledge, and 2. Assess Stakeholder Interest:
contribution. o Assign values to indicate interest: "1" for positive,
o Document Analysis: Reviews existing project "-1" for negative, "0" for neutral, and "?" for
documentation and lessons learned to identify uncertain stakeholders.
stakeholders. 3. Evaluate Stakeholder Influence:
4. Data Representation: o Use a scale from 0 to 5 to determine each
o Stakeholder Mapping/Representation: stakeholder's level of influence on the project,
Categorizes stakeholders to build relationships where 0 means no influence and 5 indicates the
using models like: ability to terminate the project.
 Power/Interest Grid: Groups stakeholders 4. Define Stakeholder Roles:
by authority and concern about project o Assign specific roles to stakeholders such as
outcomes. project champion, project owner, consultant,
 decision-maker, advocate, rival, etc. Use
descriptive adjectives or metaphors for clarity.
5. Set Objectives for Stakeholders:
o Determine what each stakeholder can contribute,
such as resources, expertise, or guidance. For
adversarial stakeholders, aim to gain their
acceptance or approval for certain project aspects.
6. Identify Strategies for Engagement:
o Develop strategies to build, maintain, improve, or
re-establish relationships with each stakeholder to
meet the defined objectives.
Stakeholder analysis is an ongoing exercise, not just a
formal document, helping the project team navigate informal
organizations and ensure effective stakeholder engagement.