Software Project

Management

spm - ©2014 adolfo villafiorita - introduction to software project management

Project Initiation: Feasibility
and Project Authorization
Initiating a project

spm - ©2014 adolfo villafiorita - introduction to software project management

 Goals of this Unit
• Learning qualitative and quantitative
techniques to select among different
projects
• Learning qualitative and quantitative
techniques to choose the best alternative
among different implementations of the
same project
• Understanding how to write a Feasibility
Study
• Choosing between internal development or
external development (make or buy)
3
spm - ©2014 adolfo villafiorita - introduction to software project management
 How does a project start?
• Initiation by some stakeholder (a company, a
potential customer, ...) driven by a need
(market, social, legal, technological
advance, ...)
• Boundaries and process not always clear
or very formalized
• First activities performed to:
– Agree on the goals (scope)
– Understand value and risks (for the performing
organization and for the other stakeholders)
– Choose a project approach

4
spm - ©2014 adolfo villafiorita - introduction to software project management
 Initiate Plan Execute & Close
Monitor

Assess Formalize Collect

Close
Feasibility Goals
Outputs

and Schedule
Monitor Goals, Cost
Develop Release

Define Kick Off

Schedule Activities

Define Costs

[Obtain
Approval]

Change Control & Configuration Management

Quality Management

Risk Management

Human Resource Management

spm - ©2014 adolfo villafiorita - introduction to software project management

Project Value and
Risks

spm - ©2014 adolfo villafiorita - introduction to software project management

 Project Value and Risks
• Two main characteristics determine whether a
project is worth starting:
– The value generated by the project
– The risks associated to the project
• The meaning of value and risk depend upon
many factors
• Value and risks can be assessed
qualitatively or quantitatively
• Sound assessments are difficult, given
the unpredictability of projects (and of
the world)
• Garbage in = Garbage out
spm - ©2014 adolfo villafiorita - introduction to software project management
 Project Value and Risks
• Project Value:
– Direct and indirect value generated by the
project
– Sustainability of the project outputs
– Alignment with strategic objectives of an
organization
• Project Risks
– Resource availability
– Timing
– Technical difficulties and uncertainties

spm - ©2014 adolfo villafiorita - introduction to software project management

 Value: Direct and Indirect Value
• Direct and Indirect Value measures the positive
and negative outcomes of a project and its
outputs
• Some metrics to consider include:
– Revenues, both direct and indirect
– Social and environmental impact
– Image and publicity
– Know-how acquired

• Direct and indirect value are strictly related to

the business model and to the sustainability
of the project outputs (see next slide)

spm - ©2014 adolfo villafiorita - introduction to software project management

 Value: Sustainability

• Sustainability refers to the capacity of

sustaining the project and its outputs after
the project end
• Taking into account the operational costs of a
project’s outputs and the way in which the
project outputs will survive after a project end
is an important consideration to understand
whether a project is worth starting.
• Often overlooked, especially when project
execution generates revenues

spm - ©2014 adolfo villafiorita - introduction to software project management

 Value: Alignment with the
Strategic Objectives

• The alignment with the strategic objectives

measures how important and relevant a
project is for the performing organization
• Priority, resource assigned, internal support,
opportunities for the project team after the
project end are all affected by how strategic a
project is for an organization

spm - ©2014 adolfo villafiorita - introduction to software project management

 Risks: Resource Availability

• Projects require the availability of human,

financial, and technical resources in specific
time-frames
• Although it might be difficult to preempt the
resources in advance, a check on the
projects needs is a good sanity-check
• Some aspects to consider include: the
required resource, current load and
availability, projections on future load and
availability, priority and importance of the
project
spm - ©2014 adolfo villafiorita - introduction to software project management
 Risks: Timing
• Many projects have specific time-windows for
the delivery of their outputs
• Deliver too early or too late and the
outputs of the project might be useless
• Consider, for instance, the race of competing
firms in delivering similar products

spm - ©2014 adolfo villafiorita - introduction to software project management

 Risks: Technical Difficulty and
Uncertainty

• The success of many projects relies on the

actual capability of solving various technical
challenges, when the time comes
• Understanding what these challenges are is an
important factor in determining the risks
associated to a project

spm - ©2014 adolfo villafiorita - introduction to software project management

 Techniques to Assess Value and Risks

spm - ©2014 adolfo villafiorita - introduction to software project management

 Payback Period

The payback period is the time taken to gain a

financial return equal to the original
investments

– Measured in months or years

– When using the payback period the projects/options
that minimize the payback period are chosen in
favor of the others

spm - ©2014 adolfo villafiorita - introduction to software project management

 Project
Example
Project Project
A B C
Year 0 € (50,000.00) € (20,000.00) € (15,000.00)

Year 1 € 30,000.00 € (10,000.00) € 15,000.00

Year 2 € 30,000.00 € 10,000.00 € 1,000.00

Year 3 € 1,000.00 € 60,000.00

Year 4 € 1,000.00 € 50,000.00

Expenses € (50,000.00) € (30,000.00) € (15,000.00)

Gains € 62,000.00 € 120,000.0 € 16,000.00

0
Profit € 12,000.00 € 90,000.00 € 1,000.00

Payback 2 3 1 year
years years
Remark: accounting style notation.
Negative numbers in red and in
parentheses
spm - ©2014 adolfo villafiorita - introduction to software project management
 Discussion
• Advantages
– Simple, readily available data
– It reduces exposure to risk
– Particularly effective in high-technology/fashion
projects
– It favors shorter term benefits
• Disadvantages
– Difficult to use on longer term projects
– Based only on cash flows
– Does not quantify exposure to risk
– Does not look at total gains

spm - ©2014 adolfo villafiorita - introduction to software project management

 Payback Weaknesses
• Different projects might have the same the same payback
period, but different profiles in returning of the investments
• These profiles are not taken into account by the technique
but could make the different between two projects

spm - ©2014 adolfo villafiorita - introduction to software project management

 Payback Weaknesses

Same payback period, but Project A gets

more money first (and reduces risks)

Year Project A Project B

Year 0 € (10,000.00) € (10,000.00)
Year 1 € (5,000.00) € (5,000.00)
Year 2 € 10,000.00 € 5,000.00
Year 3 € 5,000.00 € 10,000.00

spm - ©2014 adolfo villafiorita - introduction to software project management

 Payback Weaknesses

Different payback periods, Project

A earlier but gets less money

Year Project A Project B

Year 0 € (10,000.00) € (10,000.00)
Year 1 € (5,000.00) € (5,000.00)
Year 2 € 5,000.00 € 5,000.00
Year 3 € 5,000.00 € 11,000.00
Year 4 € 20,000.00

spm - ©2014 adolfo villafiorita - introduction to software project management

 Return on Investment (ROI)

ROI calculates the average annual profit and

transforms it into a percentage of the total
investments

Profit = Returns -
Investments Annual Profit =
Profit / Duration ROI =
Annual Profit / Investments

• When using ROI, choose the project with the

highest
spm - ROI
©2014 adolfo villafiorita - introduction to software project management
 Example
Suppose we have the following projections for a
project we need to decide whether to start or
not Project Project Project
A B C
Year 0 € (50,000.00) € (20,000.00) € (15,000.00)

Year 1 € 30,000.00 € (10,000.00) € 15,000.00

Year 2 € 30,000.00 € 10,000.00 € 1,000.00

Year 3 € 1,000.00 € 60,000.00

Year 4 € 1,000.00 € 50,000.00

spm - ©2014 adolfo villafiorita - introduction to software project management

 Example
• Project A
– Profit = 62000 - 50000 =
12000
– Annual Profit = 12000 / 4 =
3000
– ROI = 3000 / 50000 = 6%

• Project B
– Profit = 120000 - 30000 =
90000
– Annual Profit = 90000 / 4 = ROI)
22500 SOLUTION: Project B (highest

– ROI = 22500 / 30000 = 75%

spm - ©2014 adolfo villafiorita - introduction to software project management
 Discounted Cash
Flows/Inflation
• The value of money decreases over the years (inflation!)
according to the inverse compound interests formula

Discount Factor = 1
(1 + i) n

• Thus, giving it the money we invest now the same weight of

money we will get in five year is over optimistic
• DCF (Discounted Cash Flows) are techniques that take
into account inflation

• Curiosity: where does inflation comes

from? Answer: Debasement
A nice reference:
http://en.wikipedia.org/wiki/Inflation

spm - ©2014 adolfo villafiorita - introduction to software project management

 Net Present Value
• Net Present Value discounts sums in the future in order to provide a
more realistic comparison between presents investments and future
gains

spm - ©2014 adolfo villafiorita - introduction to software project management

 Net Present Value Example
1
Hypothesis
Discount Factor =
Discount Rate: 10% (1 + i) n
(this is “i”)
Year (n) Cash Flow Discount Factor Present Value
0 € (35,000.00) 1.00 € (35,000.00)
1 € 10,000.00 0.91 € 9,090.91
2 € 15,000.00 0.83 € 12,396.69
3 € 20,000.00 0.75 € 15,026.30

Expenditure € (35,000.00) € (35,000.00)

Gains € 45,000.00 € 36,513.90
Profit € 10,000.00 € 1,513.90

spm - ©2014 adolfo villafiorita - introduction to software project management

 Net Present Value: Discussion

• Advantages
– More accurate profit-loss data

• Disadvantages
– It uses a fixed discount rate (may be
unrealistic)
– It favors shorter terms projects

spm - ©2014 adolfo villafiorita - introduction to software project management

 Score Matrices
• The financial methods (Payback, ROI, NPV) look
only at some of the financial data
• Scoring matrices allow one to take into
account other factors
• They are based on a standardized set of
criteria and weights, which highlight the
relevant features of a project
• A qualitative evaluation of how a project scores
with respect to each criteria positions the
project on a scale and helps compare it with
past or competing projects

spm - ©2014 adolfo villafiorita - introduction to software project management

 Score Matrix Example
Factor Value SUM Comment
Weight
The project aligns with the YES 2 2
strategic objectives

The project has a profit > NO 4 0

20% Payback period < YES 5 5

2 years Enlarges the YES 2 2

customer base NO 3 0

The project requires a

standard technology YES 1 1

The quality constraints are

NO 4 0
simple to meet
YES 5 5
The timing is not too tight 15

We have skilled personnel to

do the work

– Value can be binary (YES/NO) or a number (e.g.

from 1 to 5) and measures how well the project
meets the requirement
– The weight measures how important a factor is for
spm - ©2014 adolfo villafiorita - introduction to software project management
 Discussion
• Advantages
– Simple
– It encourages standardization and more objectivity in
decision making
– It helps discuss and evaluate the project
characteristics
– It widens the range of evaluation
– Not biased toward shorter term projects

• Disadvantages
– A simple model may encourage development of
long and useless lists
– Different factors have same importance (unless
the weight matrix is used)

spm - ©2014 adolfo villafiorita - introduction to software project management

 Caveat
– Not all score matrices are equally
good.
– The following is an example of a bad
matrix.
Why?
Factor Valu
e
Weight SUM Comment

The project has a profit > 2 0 % YES 3 3

The project is highly risky NO 3 0

not very risky

As a consequence an highly risky project is preferred over a project which is
x
matri
same way the
A positive factor (first row) and a negative factor (second row) influence in the

SOLUTION

spm - ©2014 adolfo villafiorita - introduction to software project management

 33

Cave
at

Make sure the questions either all

positively influence or all negatively
influence the decision or use scores
with different signs!

spm - ©2014 adolfo villafiorita - introduction to software project management

 SWOT analysis
• Technique credited to Albert Humphrey
• Systematic analysis of:
– Strengths
– Weaknesses
– Opportunities
– Threats

... to understand the feasibility of a project

and/or come out with achievable project goals
• Often presented as a 2x2 matrix, with each cell
listing all elements of a given type (see next
slide)

spm - ©2014 adolfo villafiorita - introduction to software project management

 Source: http://en.wikipedia.org/wiki/File:SWOT_en.svg (cc license)
spm - ©2014 adolfo villafiorita - introduction to software project management
 36

SWOT: Some factors to

consider
• Strengths: • Weaknesses:
– Competenc – Disadvantages
es – Methodology
– Selling – Timing
points
– Capability Gaps
– ...

• Opportunities: • Threats:
– Market and – Market and Industry
Industry trends trends
– Weaknesses – Competing technologies
of – Sustainability
competitors

spm - ©2014 adolfo villafiorita - introduction to software project management

 Stakeholder Analysis
• Goal: understanding who are the project
stakeholders and the influence they have on
the project
• Different techniques available
• One technique organizes stakeholders in a
2x2 matrix in which:
– one dimension measures the power a stakeholder
can exert (low or high)
– the other dimension measures the interest a
stakeholder has in a project (negative or positive)
• This allows to define specific management
policies for the different stakeholders
spm - ©2014 adolfo villafiorita - introduction to software project management
 Assessing Sustainability
• The analysis is meant to understand the
operational costs of a project’s output
• Sometimes a specific project activity. A
preliminary sustainability analysis,
however, can help choose among different
project implementations
• Some aspects to consider include the
business model
and the break-even point

spm - ©2014 adolfo villafiorita - introduction to software project management

The Feasibility Study

spm - ©2014 adolfo villafiorita - introduction to software project management

 Feasibility Study
• The feasibility study is the document that
allows to formally authorize a project and
to link it to the organization’s goals

– Wide range of outputs: from a few to hundreds

of pages (according to complexity and formality)
– The feasibility study can be thought of as a
project in the small, drafting the main information
we will define in more details during the project
– Basis for project selection: Management must
choose what projects to activate.

spm - ©2014 adolfo villafiorita - introduction to software project management

 Goals of a Feasibility Study
• Identify:
– the project goals
– the project constraints

• Assess value and risks (using the techniques

above)
• Ensure the project lines up with
– the customer objectives
– the performing organization objectives

• Demonstrate that the project goals

– can be achieved respecting the quality, cost,
and time constraints

spm - ©2014 adolfo villafiorita - introduction to software project management

 42

Feasibility Document:
Structure
– A statement of work, – An analysis of
which describes what the the
project will accomplish. stakeholders.
– The business objectives – The project
(value) of the project or its risks.
outputs and information – Possible alternatives to
about the business the project, such as a
model, if relevant. make or buy decision.
– A summary of the – An evaluation of the
project budget, which project and of the
forecasts expenses alternatives, using the
and incomes. techniques described
– A summary of the project above.
milestones, that is, a
rough schedule of the
project spm
identifying the villafiorita - introduction to software project management
- ©2014 adolfo
 Feasibility: Additional
Considerations
• The feasibility document has a value for:
– The client, since it helps understand
the way forward and what are the
short and long term perspectives
– The performing organization, since it helps
understand whether it makes sense to move
on with a project
– The project manager, since it helps
understand whether the project will be in the
manager’s comfort zone or not (and take an
informed decision on whether the project is
worth taking or not)
spm - ©2014 adolfo villafiorita - introduction to software project management
 The Project Approval Process
• The process which brings to the project approval
is more or less structured according to the
practices of the performing organization
• It is organized in the following steps:
– Upon receiving a request, identify a
(preliminary) project manager
– The project manager prepares a feasibility study
which is agreed with the customer and key
stakeholders
– The project manager submits the document for
authorization
– The document is analyzed and a formal decision
is taken
– The project manager is appointed and the project
spm - ©2014 adolfo villafiorita - introduction to software project management