Unit2 Chapter 2 Programme Management and Project Evaluation.pdf
- 2. To Be Covered Programme Management Creating Program Resource Allocation Project Evaluation Risk Evaluation
- 3. Programme Management One definition: ‘a group of projects that are managed in a co- ordinated way to gain benefits that would not be possible where the projects to be managed independently’
- 4. Programmes may be Strategic Business cycle programmes Infrastructure programmes Research and development programmes Innovative partnerships 4
- 5. Strategic Programmes Several projects together can implement a single strategy. For example : Two organizations are merging So we have to create unified pay roll and accounting application. Physical reorganization of offices Training, new org. procedures, re-creating corporate image using media All of these projects can be treated as separate project 5
- 6. Business cycle programmes Portfolio??? The collection of projects that an organization undertakes within a particular planning cycle is sometimes refers to as a portfolio. Companies had fixed budget for ICT development. Planners needs to assess the comparative value and urgency of projects within a portfolio. 6
- 7. ICT (information and communications technology - or technologies) is an umbrella term that includes any communication device or application, encompassing: radio, television, cellular phones, computer and network hardware and software, satellite systems so on, as well as the various services and applications associated with them, such as videoconferencing and distance learning.
- 8. Infrastructure programmes Some organizations have different departments for different activities with communication as a basic requirement among them. So it is required to have a uniform infrastructure to share the information among different departments. In this situation infrastructure program setup and maintain ICT infrastructure, include the networks, workstation and server. 8
- 9. Research and development programmes A search for knowledge R&D programmes are carried out by the innovative companies. These company develops new products for market. There is always high risk associated with these type of programmes. Companies doing R&D IBM, APPLE ,MS, Google, Yahoo 9
- 10. Innovative partnerships Some technological developments benefits whole industries. In these type of programmes companies comes together to develop new technologies Example World wide web, GSM 10
- 11. Programme managers versus project managers Programme manager Many simultaneous projects Optimization of resource use Projects tend to be seen as similar Project manager One project at a time Minimization of demand for resources Projects tend to be seen as unique 11
- 12. 2.8 Allocation of Resource What is a project? Planned Activity What is Resource? support that may be drawn upon when needed Each project needs Resources to achieve there objective. Resources may be: Programmers Skilled resources Infrastructure (PC, Network, Server, Work stations etc) 12
- 13. Managing the allocation of resources within programmes In company there are many project running concurrently at same time But resources are limited in company so they need to be managed within the organization. So we need to manage these resource. ICT department has pools of: Expertise Software Developer Database designer 13
- 15. These experts may be needed in number of projects running in company. So it is the responsibility of program manager to use these resources in optimum way. And if program manager have personal relationship with these skilled resources. i.e. he/she has the knowledge about these resources 15
- 16. One resource may be needed by different project So we need to identify the priority of the project We can delay the start of activity of a project with least priority. 16
- 17. 2.10 Creating Programme Based on OGC approach OGC is a UK govt. Agency responsible for introduction programme management Programme triggered by the creation of programme mandate Initial planning document is the Programme Mandate describing The new services/capabilities that the programme should deliver How an organization will be improved 17
- 18. A programme director is appointed for the program to take leadership Programme director is responsible for success of the programme 18
- 19. Next stages/documents The programme brief equivalent of a feasibility study: It will have sections: Vision Statement Benefits Risks and Issues Estimation cost, timescale and effort 19
- 20. The vision statement The vision statement – explains the new capability that the organization will have Provides information to sponsoring that it is worth moving to more detailed definitions. Next Step is team forming A small team is formed with a programme manager This team will now take the outline vision and prepare a detailed vision 20
- 21. The blueprint The blueprint – explains the changes to be made to obtain the new capability It contains: Business model outline Organizational structure (staff & new system needed ) The other non-staff resource needed Data and information requirements Cost, performance and service level requirements 21
- 22. 2.4 Project Evaluation Evaluation of individual projects How the feasibility of an individual project can be evaluated.
- 23. 1. Technical assessment: Whether the required functionality can be achieved with current affordable technologies. Organizational policies H/W S/W infrastructure limitations Cost of technology adapted
- 24. 2. Cost-benefit analysis: Is the proposed project is the best of several options? Cost-benefit analysis comprises two steps- 1. Identify costs and benefits of Developing costs Operating costs Benefit expected from the new system 2. Expressing above costs in common units Express cost and benefit in terms of a common unit
- 25. Benefits management In Benefit management, we identify, optimise and track the benefits. 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 25
- 26. Cash Flow Forecasting Which in indicates when expenditure and income will take place. Ex: Spend money on staff salaries 26
- 27. 2.5 Cost-Benefit Evaluation Techniques Net Profit Payback Period Return on Investment(ROI) Net Present Value
- 28. Net profit Net Profit = (Total income) – (Total cost) Over the life of the project Estimation for more distant future are less reliable than short term estimation. 28
- 29. Net profit 29
- 30. Pay back period It is time taken to break even or pay back the initial investment. Project with shortest payback period will be chosen on the basis that an organization will wish to minimize the time that a project is in debt. Advantage: Easy to calculate Not sensitive to small forecasting errors Disadvantage: Ignores overall profitability of project 30
- 31. 31 Pay back period 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 Accumulated of last year – cash flow of present year The payback period would be about 4.5 years.
- 32. Return on investment (ROI) Accounting rate of return (ARR) Compares net profitability with investment required. 32 ROI = Average annual profit Total investment X 100
- 33. ROI For project1 Net Profit = 50000 Time Duration= 5 years Average annual profit is =50000/5=10000 ROI = 10000 100000 X 100 ROI = 10%
- 34. Return on investment (ROI) 34 In the previous example Calculate ROI and decide which project is most worthwhile: P1: 10% P2: 20% P3:10% P4:15% We eliminate P3, and consider only from P2 and P4, out of this P2 is better
- 35. Net present value NPV is a project evaluation technique that takes into account the profitability and timing of the cash flows. 35 • Present value = (value in year t)/(1+r)t t = value in year, r = discount factor Discount Cash Flow= Cash flow * Present Value Net Present Value = Sum of the discounted cash flows for all the years - investment
- 36. Year Cash-flow Discount factor/Present value @10% Discounted cash flow 0 -100,000 -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 Net Profit 50,000 NPV 618 36 t = 1 r = 10% = 0.1 PV = 1 / (1 + 0.1)1 Discount Cash Flow = 10000 * 0.9091 = 9091 NPV = (9091 + 8264 + 7513 + 13660 +62090) - 100000 )
- 37. If NPV is in +Ve than its discount factor is good If NPV is – Ve than its discount factor is bad Irr-internal rate of return-
- 38. 2.6 Risk Evaluation Every project involves risk of some form. Project A might appear to give a better return than B but could be riskier How to choose ????? 38 Dealing with uncertainty: Risk Evaluation
- 39. Risk Evaluation 1. Risk Identification and Ranking One technique is, to draw risk matrix. Classify risk into two categories : Important (impact) Likelihood (probabilty) Matrix may be used for project evaluation 39
- 40. Example of a project risk matrix 40
- 41. 2. NPV and Risk For riskier projects, could use higher discount rates. We can increase Discount rate for risky projects by 5 to10%. 41
- 42. 3. Cost-benefit Analysis: In this approach we consider each possible outcome and estimate the probability of their occurrence. So instead of single cash flow we will have set of cash flows and their occurrence. 42
- 43. Risk Evaluation(Cont.) Sales Annual Sales Income Probability Expected value High 8,00,000 0.1 80,000 Medium 6,50,000 0.6 390,000 Low 100,000 0.3 30,000 Expected Income 5,00,000 43
- 44. 4. Risk Profile Analysis Construction of risk profiles using sensitivity analysis We can analyze the risk with project by varying the parameters of project that affects the cost or benefits of the project. First we do the estimation then we vary it and check it’s sensitivity. For example we are varying the original estimation by + or – 5% and then recalculate the cost and benefits. If the project cost and benefits changes drastically then that parameter becomes sensitive to project 44
- 45. 5. Decision trees: Example: Some company is providing payroll service to their customers. Their system is old and number of customers are increasing. There is a probability that market will expand more. They have two option Expand the existing system Replace the old with new 45