Lecture 3 & 4 Evaluation & Program Management

8/17/2019 Lecture 3 & 4 Evaluation & Program Management

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Evaluation &

ProgramManagementLecture 3 & 4


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Topics

• The business case for a project

• Project portfolios

• Project evaluation

• Cost benet analysis

• Cash o! forecasting

• Program management

• "enets management


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The "usiness Case

• Feasibility studies can also act as a#business case$

• Provi%es a justication for starting the project

• houl% sho! that the benets of the project!ill e'cee% %evelopment( implementation an%operational costs

• )ee%s to ta*e account of business ris*s


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Contents of a "usinessCase

+, -ntro%uction. bac*groun%

/, The propose% project

3, The mar*et

4, 0rgani1ational an% operational infrastructure

2, The benets

, 0utline implementation plan

, Costs

5, The nancial case

6, 7is*s+8, Management plan


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Content of the "usinessCase• Introduction/background: %escribes a problem to be solve% or an

opportunity to be e'ploite%

• The proposed project: a brief outline of the project scope• The market: the project coul% be to %evelop a ne! pro%uct 9e,g, a

ne! computer game:, The li*ely %eman% for the pro%uct !oul% nee%to be assesse%,

• Organizational and operational infrastructure: ;o! theorgani1ation !oul% nee% to change, This !oul% be important !here ane! information system application !as being intro%uce%,

• Benets These shoul% be e'press in nancial terms !here possible,-n the en% it is up to the client to assess these < as they are going topay for the project,

• Outline implementation plan: ho! the project is going to be

implemente%, This shoul% consi%er the %isruption to an organi1ationthat a project might cause,

• osts: the implementation plan !ill supply information to establishthese

• Financial analysis: combines costs an% benet %ata to establishvalue of project


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Project portfoliomanagement The concerns of project portfolio management inclu%e=• Evaluating proposals for projects

• >ssessing the ris* involve% !ith projects

• ?eci%ing ho! to share resources bet!een projects

• Ta*ing account of %epen%encies bet!een projects

• 7emoving %uplication bet!een projects• Chec*ing for gaps


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Project portfolio management @continue%

There are three elements to PPM=

+, Project portfolio %enition

• Create a central recor% of all projects !ithin anorgani1ation

• Must %eci%e !hether to have >LL projects in the repository

or( say( only -CT projects

• )ote %iAerence bet!een ne! pro%uct %evelopment 9)P?:projects an% rene!al projects e,g, for process improvement

/, Project portfolio management

>ctual costing an% performance of projects can be recor%e%

an% assesse%3, Project portfolio optimi1ation

-nformation gathere% above can be use% achieve betterbalance of projects e,g, some that are ris*y but potentiallyvery valuable balance% by less ris*y but less valuable projects


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Cost benet analysis9C">: This relates to an in%ivi%ual project, Bou nee% to=

• -%entify all the costs !hich coul% be=

• ?evelopment costs

• et@up

• 0perational costs

• -%entify the value of benets

• Chec* benets are greater than costs


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Pro%uct.system life cycle cash o!s

• The timing of costs an% income for a pro%uct of system nee%s tobe estimate%,

• The %evelopment of the project !ill incur costs,

• hen the system or pro%uct is release% it !ill generate income

that gra%ually pays oA costs• ome costs may relate to %ecommissioning < thin* of

%emolishing a nuclear po!er station,


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)et prot

#Bear 8$ represents all thecosts before system isoperation

#Cash@o!$ is value ofincome less outgoing

)et prot value of all thecash@o!s for the lifetimeof the application

Year Cash-flow

0 -100,000

1 10,000

2 10,000

3 10,000

4 20,000

5 100,000

Net profit 50,000


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!ay back period This is the time it ta*es to start generating a surplus of income

over outgoings, hat !oul% it be belo!D

Year Cash-flow Accumulated

0 -100,000 -100,000

1 10,000 -90,000

2 10,000 -0,000

3 10,000 -!0,000

4 20,000 -50,000

5 100,000 50,000

7 t i t t


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7eturn on investment970-:

70- >verage annual prot Total investment

F +88

-n the previous e'ample• average annual prot

28(888.2 +8(888

•

70- +8(888.+88(888 F +88 +8G


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)et present value

• )et Present Halue 9)PH: is the %iAerence bet!eenthe present value of cash ino!s an% the presentvalue of cash outo!s,

• Mr, F -nvests I+8(888 to buy a Pi11a 0ven• 0ven can create +888 Pi11a in one year < life of

oven is years

• + Pi11a saves I/

• -n one year time 0ven saves I/(888• -n si' year time 0ven saves I+/(888

• hat is the value of I+/(888 to%ayD


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?iscount factor

?iscount factor +.9+Jr:t

r is the interest rate 9e,g, +8G is 8,+8:

t is the number of years

-n the case of +8G rate an% one year

?iscount factor +.9+J8,+8: 8,686+

-n the case of +8G rate an% t!o years

?iscount factor +.9+,+8 ' +,+8: 8,5/64


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>pplying %iscount factors

Year Cash-flow "iscou#t factor "iscou#ted cash flow

0 -100,000 1$0000 -100,000

1 10,000 0$9091 9,091

2 10,000 0$2%4 ,2%43 10,000 0$!513 !,513

4 20,000 0$%30 13,%%0

5 100,000 0$%209 %2,090

N&' %1


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-nternal rate of return

• -nternal rate of return 9-77: is the %iscount ratethat !oul% pro%uce an )PH of 8 for the project

• Can be use% to compare %iAerent investmentopportunities


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?ealing !ith uncertainty= 7is*evaluation

• project > might appear to give a better returnthan " but coul% be ris*ier

• Coul% %ra! up %ra! a project ris* matri' for eachproject to assess ris*s < see ne't overhea%

• Kor ris*ier projects coul% use higher %iscount rates

E l f j t i *


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E'ample of a project ris*matri'


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?ecision trees


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?ecision trees @ Continue%

• E'ten%ing= I48(888 92(888 ' 8,5 < +88(888 ' 8,/:

• 7eplacement= I+8(888 9/28(888 ' 8,/ < 28(888 '8,58:

• E'ten%ing is a safe bet 9but a bet:


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Programme management

• 0ne %enition=

‘a group of projects that are managed in a co-ordinated way to gain benets that would not be

possible were the projects to be managed

independently’ Kerns


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Programmes may be

• trategic

• "usiness cycle programmes

• -nfrastructure programmes

• 7esearch an% %evelopment programmes

• -nnovative partnerships


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Programme managers versus projectmanagers

Programme manager

• Many simultaneousprojects

• Personal relationship

!ith s*ille% resources• 0ptimi1ation of

resource use

• Projects ten% to beseen as similar

Project manager

• 0ne project at a time

• -mpersonalrelationship !ithresources

• Minimi1ation of%eman% for resources

• Projects ten% to beseen as uniue


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)e't stages.%ocuments

• The programme brief < euivalent of afeasibility stu%y= emphasis on costs an% benets

• The "ision statement < e'plains the ne!capability that the organi1ation !ill have

• The blueprint < e'plains the changes to bema%e to obtain the ne! capability


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"enets management

theapplication

%evelopers users

benets

buil%

use

to%eliver

organi1ation

for

•Provi%ing an organi1ation !ith a capability %oes not

guarantee that this !ill provi%e benets envisage% < nee%for benets management • This has to be outsi%e the project < project !ill havebeen complete%• Therefore %one at programme level


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"enets management

To carry this out( you must=

• ?ene e'pecte% benets

• >nalyse balance bet!een costs an% benets

• Plan ho! benets !ill be achieve%

• >llocate responsibilities for their achievement

• Monitor achievement of benets


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"enets

These might inclu%e=

• Man%atory reuirement

• -mprove% uality of service

• -ncrease% pro%uctivity

• More motivate% !or*force

• -nternal management benets

• 7is* re%uction

• Economies

• 7evenue enhancement.acceleration

• trategic t


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Nuantifying benets

"enets can be=

• Nuantie% an% value% e,g, a re%uction of x staAsaving £y

• Nuantie% but not value% e,g, a %ecrease in

customer complaints by x%• -%entie% but not easily uantie% < e,g, public

approval for a organi1ation in the locality !here itis base%


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7emember

• > project may fail not through poor management butbecause it shoul% never have been starte%

• > project may ma*e a prot( but it may be possible to%o something else that ma*es even more prot

•> real problem is that it is often not possible to e'pressbenets in accurate nancial terms

• Projects !ith the highest potential returns are often themost ris*y

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Lecture 3 & 4 Evaluation & Program Management

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