I T Project Management

UNIT – 1
Notes
Activities covered by Software project Management:

A software project is not only concerned with the actual writing of software. Usually there are three
successive processes that bring a new system into being.

a. The feasibility study

• This investigates whether a prospective project is worth starting – that it has a valid business
case. Information is gathered about the requirements of the proposed application.
• The probable developmental and operational costs, along with the value of the benefits of the
new system, will also have to be estimated.

b. Planning

• If the feasibility study produces results which indicate that the prospective project appears
viable, then planning of the project can take place.
• Formulate an outline plan for the whole project and a detailed one for the first stage. More
detailed planning of the later stages would be done as they approached.

c. Project execution

• The project can now be executed. The execution of a project often contains design and
implementation sub-phases.
• Designisthinkingandmakingdecisionsaboutthepreciseformoftheproductsthattheprojectis to create.
In the case of software, this could relate to the external appearance of the software, that is, the
user interface, or the internal architecture.
ISO12207 Software Development lifecycle:

Requirements analysis: This starts with requirements elicitation which investigates what the potential
users and their managers and employers require as features and qualities of the new system. These will
relate to the system as a whole.

Architecture design This maps the requirements to the components of the system that is to be built. At
the system level, decisions will need to be made about which processes in the new system will be carried
out by the user and which can be computerized.
This design of the system architecture thus forms an input to the development of the software
requirements. A second architecture design process then takes place which maps the software
requirements to software components.

Code and test This could refer to writing code in a procedural language such as C# or Java, or could
refer to the use of an application-builder such as Microsoft Access. Initial testing to debug individual
software components would be carried out at this stage.

Integration The individual components are collected together and tested to see if they meet the overall
requirements. Integration could be at the level of software where different software components are
combined, or at the level of the system as a whole where the software and other components of the
system such as the hardware platforms and networks and the user procedures are brought together.

Qualification testing The system, including the software components, has to be tested carefully to
ensure that all the requirements have been fulfilled.

Installation This is the process of making the new system operational. It would include activities like
setting up standing data(suchaspayrolldetailsforemployeesifthiswereapayrollsystem).Itwouldalso include
setting system parameters, installing the software onto the hardware platforms and user training.

Acceptance support This is the resolving of problems with the newly installed system, including the
correction of any errors that might have crept into the system and any extensions and improvements that
are required. It is possible to see software maintenance as a series of minor software projects. In many
environments, most software development is in fact maintenance.

Plans, methods and methodologies:

• A plan for an activity must be based on some idea of a method of work.

• Groups of methods or techniques are often referred to as methodologies(e.g. OOD)

• a method relates to a type of activity in general, a plan takes that method (and perhaps others)
and converts it to real activities, identifying for each activity:

– its start and end dates;

– who will carry it out;

– What tools and materials will be used?

Some ways of categorizing software projects:

Distinguishing different types of project is important as different types of task need different project
approaches

1. Compulsory versus voluntary projects

Voluntary systems (such as computer games–what game will do?)

Compulsory systems e.g. the order processing system in an organization (recording a sale)

2. Information systems versus embedded systems

Information systems (Enable staff to carry out office processes)

Embedded systems (process control-which controls machine)

3. Out sourced projects

4. Object driven versus product driven development

Objective-driven projects: a general objective or problem is defined, and there are several different ways
in which that objective could be reached. The project teams have freedom to select what appears to be
the most appropriate approach.

In Product-based projects, the product is already very strictly.

Stakeholders:

These are people who have as take or interest in the project in general, they could be users / clients or
Developers / implementers. They could be:

• Internal to the project team

• External to the project team but within the same organization (e.g. users)
• External to both the project team and the organization.(e.g. customers)

Different stake holders may have different objectives. Project leader need to define common project
objectives using ‘Theory W’ (win-win).

Setting Objectives:

Informally, the objective of a project can be defined by completing the statement: The project will be
regarded as a success “if” Rather like post-conditions for the project, Focus on what will be put in
place, rather than how activities will be carried out.

e.g. ‘a new payroll application will be operational by 4th April’ not ‘design and code a new payroll
application’

Overall authority over the project is often termed as project steering committee or project
management board. The project manager runs the project on a day-to-day basis, but regularly reports to
the steering committee. Roles: Setting, monitoring and modifying objectives.

The project manager runs the project on a day-to-day basis, but regularly reports to the steering
committee.

Sub-objectives and goals: A goal can be allocated to an individual. Individual may have the capability
of achieving goal, but not the objective on their own. A more appropriate goal or sub objective for the
software developers would be to keep development costs within a certain budget.

e.g. Objective – user satisfaction with software product,

Analyst goal–accurate requirements and

Developer goal – software that is reliable

Objectives should be SMART

An objective is a statement which describes what an individual, team or organization is hoping to
achieve. Objectives are 'SMART' if they are specific, measurable, achievable, realistic and, timely (or
time-bound).

S–Specific, that is, concrete and well-defined

M–Measurable, that is, satisfaction of the objective can be objectively judged

A–Achievable, that is, it is within the power of the individual or group concerned to meet the target

R–Relevant, the objective must relevant to the true purpose of the project

T–Time constrained, there is defined point in time by which the objective should be achieved

1. Specific

There are a number of different ways in which SMART objectives can be set, one method is to start by
identifying what you want the individual to do or achieve that reflects both the departmental or team
objectives.

2. Measurable

Having identified what needs to be achieved and having written this as a statement (in the box above)
you then apply the SMART criteria to it.

3. Achievable

This is where you need to consider the context, abilities etc. of the individual that you are expecting to do
this work. Is it something that they would be able to do? It may be that the individual would need support
in the form of resources, training/development etc. in order to achieve the objective set.

4. Relevant

Double check that the statement you are now crafting reflects both what is needed by the department and
fits in with the expectations of the individual as described in their job summary/ job description.

5. Time Constrained

A deadline date or time when the objective will be accomplished or completed is necessary and must be
included so as to make the objective measurable. A deadline helps to create the necessary urgency,
prompts action and focuses the minds of those who are accountable for the commitments that they have
made through the objectives.

Measures of effectiveness

How do we know that the goal or objective has been achieved? By a practical test, that can be objectively
assessed. e.g. For user satisfaction with software product:

Repeat business–they buy further products from us

Number of complaints – if low etc.

Performance Measurement: Measure reliability using MTBF (Mean Time between Failures).

Business Case:
Feasibility study or a project justification is called business case.

Its objective is to provide a rationale for the project by showing that the benefits of the project outcomes
will exceed the costs of development, implementation and operation.

Business case may contain: 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 and management plan.

Project Portfolio Management (PPM):

Strategic and operational assessment carried by an organization on behalf of customer is called portfolio
management. Project portfolio management provides an overview of all the projects that an organization
is undertaking or is considering. It prioritizes the allocation of resources to projects and decides which
new projects should be accepted and which existing ones should be dropped.

It also includes:

(i) Identifying which project proposals are worth implementation

(ii) Assessing the amount of risk of failure that a potential project has

(iii) Deciding how to share limited resources, including staff time and finance between projects

(iv) Being aware of the dependencies between projects

(v) Ensuring that projects do not duplicate work

(vi) Ensuring that necessary developments have not been in advertently been missed.

Key aspects of Project portfolio management:

(1) Project portfolio definition

An organization should record in a single repository detail of all current projects. A decision will be
needed about whether projects of all types are to be included.

The projects can be divided into new product developments, renewable projects and information system
projects.

(2) Project portfolio management

Once the portfolio has been established, more detailed costing of projects can be recorded. The value that
managers hope will be generated by each project can also be recorded.

This information can be the basis for them or a rigorous screening of new projects.

(3) Project portfolio optimization

The performance of the portfolio can be tracked by high-level managers on a regular basis. Some projects
could potentially be profitable but could also be risky.

Other projects could have modest benefits, such as those cutting costs by automating processes, but have
fewer risks.

The portfolio ought to have a carefully thought – out balance between the two types of project.

Project Evaluation:

Project evaluation is a step by step process of collecting, recording and organizing information about
project results, short - term outputs (immediate results of activities or project deliverables) long term
outputs (changes in behavior , practice or policy resulting from the result.

(1) Technical assessment:

Technical assessment of a proposed system evaluates functionality against available Hardware and
Software.
Limitations:
• Nature of solutions produced by strategic information systems plan
• Cost of solution. Hence undergoes cost -benefit analysis.

(2) Cost-Benefit analysis: (Economic assessment)

Comparing the expected costs of development and operation of the system with its benefits.
Cost benefit analysis comprises of two steps:

Step-1: identifying and estimating all of the costs and benefits of carrying out the project.
Step-2: expressing these costs and benefits in common units.

Step-1: It includes Development cost of system, operating cost of system and benefits obtained by
system. When new system is developed by the proposed system, then new system should reflect the
above three as same as proposed system.
Example: sales order processing system which gives benefit due to use of new system.

Step-2: Calculates net benefit.

Net benefit= total benefit=total cost. (Cost should be expressed in monetary terms).

Three types of direct cost

• Development costs: includes salary and other employment cost of staff involved.
• Setup costs: includes the cost of implementation of system such as hardware, and also file
conversion, recruitment and staff training.
• Operational cost: cost requires operating system, after it is installed.

(3) CASH FLOW FORCASTING

• It estimates overall cost and benefits of a product with respect to time. It includes negative cash
flow during development stage and positive cash flow during operating life.
• During development stage expenditure includes staff wages, borrowing money from bank,
paying interest to bank, payment of salaries, amount spent for installation, buying hardware and
software.
• Income is expected by 2 ways
– Payment on completion
– Stage payment

Cost-Benefit Evaluation techniques:

It considers the timing of the costs and benefits and the benefits relative to the size of the investment.
Common method for comparing projects on the basic of their cash flow forecasting.

1) Net profit
2) Payback Period
3) Return on investment
4) Net present Value
5) Internal rate of return

(1) Net profit:

• Calculated by subtracting a company's total expenses from total income.
Net profit = total costs – total incomes
• Showing what the company has earned (or lost)in a given period of time (usually one year). It’s
also called net income or net earnings.
Calculate net profit example:

Year Project1 Project2 Project3

0 -1,00,000 -10,00,000 -1,20,000
1 10,000 2,00,000 30,000
2 10,000 2,00,000 30,000
3 10,000 2,00,000 30,000
4 20,000 2,00,000 30,000
 5 1,00,000 3,00,000 75,000
Net profit 50,000 1,00,000 75,000

(2) Payback period:

The payback period is the time taken to recover the initial investment.
Or
It is the length of time required for cumulative incoming returns to equal the cumulative costs of an
investment
Advantages
• Simple and easy to calculate.
• It is also a seriously flawed method of evaluating investments
Disadvantages
• It attaches no value to cash flows after the end of the payback period.
• It makes no adjustments for risk.
• It is not directly related to wealth maximization as NPV is.
• It ignores the time value of money.
• The "cutoff" period is arbitrary.
Project1=10,000+10,000+10,000+20,000+1,00,000=1,50,000
Project2= 2,00,000+2,00,000+2,00,000+2,00,000+3,00,000=11,000,00
Project3=30,000+30,000+30,000+30,000+75,000=1,95,000
Itignoresanybenefitsthatoccurafterthepaybackperiodand,therefore,doesnotmeasureprofitability.

(3) Return on Investment (ROI) or accounting rate of return:

It provides a way of comparing the net profitability to the investment required.

Or
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a
number of different investments.

ROI = (Avg. annual Profit / Total investment) * 100

Average Annual Profit = Net Profit / Total number of years

Disadvantages
• It takes no account of the timing of the cash flows.
• Rate of returns bears no relationship to the interest rates offered or changed by bank.
 Example:
Calculate ROI for project1.
Answer: Total investment=1,00,000
Net profit = 50,000
Total no. of years=5
Average annual profit =50,000/5=10,000
ROI=(10,000/1,00,000)*100=10%

(4) Net present value(NPV):

• Discounted Cash Flow (DCF) is a cash flow summary adjusted to reflect the time value of money.
DCF can be an important factor when evaluating or comparing investments, proposed actions, or
purchases. Other things being equal, the action or investment with the larger DCF is the better decision.
When discounted cash flow events in a cash flow stream are added together, the result is called the Net
Present Value (NPV).

• When the analysis concerns a series of cash inflows or outflows coming at different future times, the
series is called a cash flow stream. Each future cash flow has its own value today (its own present
value). The sum of these present values is the Net Present Value for the cash flow stream.
• The size of the discounting effect depends on two things: the amount of time between now and each
future payment (the number of discounting periods) and an interest rate called the Discount Rate.
• The example shows that:
• As the number of discounting periods between now and the cash arrival increases, the present value
decreases.
• As the discount rate (interest rate) in the present value calculations increases, the present value
decreases.

Year Cash-flow Discount factor (discount rate 10%) Discounted cash flow
0 -1,00,000 1.0000 -1,00,000
1 10,000 0.9091 9,901
2 10,000 0.8264 8,264
3 10,000 0.7513 7,513
4 20,000 0.6830 13,660
5 1,00,000 0.6209 62,090
NPV 618
(5) Internal Rate of Return (IRR):
The IRR compares returns to costs by asking: "What is the discount rate that would give the cash
flow stream a net present value of 0?"
IRR asks a different question of the same two cash flow streams. Instead of proposing a discount rate and
finding the NPV of each stream (as with NPV), IRR starts with the net cash flow streams and finds the
interest rate (discount rate) that produces an NPV of zero for each. The easiest way to see how this
solution is found is with a graphical summary:

• These curves are based on the Case A and Case B cash flow figures in the table above. Here,
however, we have used nine different interest rates, including 0.0 and 0.10, on up through 0.80.
• As you would expect, as the interest rate used for calculating NPV of the cash flow stream
increases, the resulting NPV decreases.
• For Case A, an interest rate of 0.38 produces NPV = 0, whereas Case B NPV arrives at 0 with an
interest rate of 0.22.
• Case A therefore has an IRR of 38%, Case B an IRR of 22%.
• IRR as the decision criterion, the one with the higher IRR is the better choice.