Software Project

Management
Chapter 3
4th Edition

Programme
management and
project evaluation

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Main topics to be covered
• Programme management
• Benefits management
• Project evaluation
– Cost benefit analysis
– Cash flow forecasting
• Project risk evaluation

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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
– Personal relationship relationship with
with skilled resources resources
– Optimization of – Minimization of
resource use demand for
– Projects tend to be resources
seen as similar – Projects tend to be
seen as unique
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Projects sharing resources

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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 organizational 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
application
build
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
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•Therefore done at programme level
 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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 Cost benefit analysis (CBA)

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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 Net profit
Year Cash-flow ‘Year 0’ represents all
0 -100,000 the costs before
system is operation
1 10,000
‘Cash-flow’ is value of
2 10,000
income less outgoing
3 10,000
Net profit value of all
4 20,000 the cash-flows for the
5 100,000 lifetime of the
application
Net
50,000
profit
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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 (ROI)
ROI = Average annual profit X 100
Total investment

In the previous example

• average annual profit
= 50,000/5
= 10,000
• ROI = 10,000/100,000 X 100
= 10%
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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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Decision trees

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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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