0100 01-it-prj planning-webinar
TRANSCRIPT
CATEGORY: Strategic Planning > IT Project Planning
Management Skills Training Guide
Category: Strategic Planning
IT Project Planning
Developing the Business Case for Requesting Project Fund$.
About the Speaker
Richard “Ric” FrederickProject Management Professional (PMP)Microsoft Certified Professional (MCP)
www.linkedin.com/in/rfrederickwww.pm-essentials.com
Assured Solutions::[email protected]
Executive Summary
Situation:
IT Governance is the Structured Oversight (select, control, evaluate) executives perform to ensure the alignment of IT investment with Strategic Priorities.
Problem:Because of poor methodology, a lot of time is wasted on good ideas that ultimately do not get funded.
Solution:
Utilizing the Project Management International (PMI®) - Project Management Body of Knowledge (PMBOK®) as the basis for planning IT projects can help IT Managers write a more credible business case.
How It Works:Nine (9) Knowledge Areas and the Project Planning Process.
Benefits:Improve the Opportunity for funding Capital Budget requests.
Next Steps: One (1) Hour IT Planning Webinar
What are Projects?
What are Projects?
• Groups of Business Activities…
• Required to Transform Knowledge into Wealth…
• For Maximizing Return on Investment…
• Of Owner’s Equity or Net Worth…
• By a Specific Target Date.
Groups of Business Activities…
Operations(Manage the
Work)
Sales(Get the
Business)
Service(Do the Work)
Accounting(Get Paid)
Groups of Business Activities…
Required to Transform Knowledge into Wealth…
Input Output
Process
Operations(Manage the
Work)
Sales(Get the
Business)
Service(Do the Work)
Accounting(Get Paid)
Required to Transform KnowledgeInto Wealth…
For Maximizing Return on Investment…
Return on Investment = (Productivity) x (Efficiency)
Productivity =(Total Revenue) / (Total Assets)
Efficiency =(Total Profit) / (Total Revenue)
For MaximizingReturn on Investment…
Of Owner’s Equity or Net Worth…
(Assets) - (Liabilities) = NetWorth
What YouOwn
What YouOwe
What’sLeft.
Of Owner’s Equity,Or Net Worth…
By a Specific Target Date.
RATE YEARS RATE YEARS RATE YEARS RATE YEARS
1%72
years 6%12
years11%
6.55
years16%
4.5
years
2%36
years7%
10.3
years12%
6
years17%
4.24 years
3%24
years8%
9 years 13%
5.54
years18%
4 years
4%18
years9%
8 years 14%
5.14
years19%
3.79
years
5%14.4
years10%
7.2 years 15%
4.8
years20%
3.60
years
“Rule of 72”
By a Specific Target Date…
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
SITUATION > Executive Scrutiny
• Because of increased transparency (Sarbanes-Oxley) and accountability (Clinger-Cohen Act)...
• Executives at public institutions, U.S. Corporations and Government Agencies, are under increasing scrutiny to wisely manage the capital entrusted to them by stockholders and tax payers.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > IT Governance
• IT Governance is the structured oversight (Select, Control, Evaluate) that executives perform to ensure the alignment of IT investments with strategic priorities.
• According to the Federal CIO Council committee on Capital Planning and IT Investment, there are sixteen (16) success factors associated with the selection of Information Technology.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Federal CIO Council > 16 Success Factors
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
1. Establish corporate decision making infrastructure.
2. Defined business, technical, and management goals and
objectives.
3. Involve functional level IT executives.
4. Integrated IT planning cycle with agency budget cycle.
5. Use of Scorecards.6. Developed portfolio
management approaches.
7. Active, energized investment review board.
8. Analyzed multiple investment risk categories.
9. Use of Raines Rules and guiding principles.
10. Predicted benefits of investment that accrue in the near
term rather than 3-5 years.
11. Standardized reporting formats.
12. Exercised a practical "make sense" approach.
13. Exercised flexibility where appropriate.
14. Develop criteria for applying decision making.
15. Incorporated lessons learned into process.
16. Use mission based performance measure.
SITUATION > “Do More With Less”
• With Executives under scrutiny, Functional IT Managers are increasingly told to “do more with less.”
• Already challenged with the requirements of managing technology, these managers need a better way to “manage for value.”
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Manage for Value
• Manage for Value
– Time Value of Money
– Cost of Capital
– (ROI)Return on Invested Capital
– Capital Budgeting
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Time Value of Money
“A dollar ($) today
is worth more
than
a dollar ($)
tomorrow.”
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Time Value of Money
• How do You improve Your Standard of Living?
1.Save Your Money.
2. Invest Your Money.
3.Start a Business.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Time Value of Money
Time
Risk/Return
Inflation
Savings
Investing
Business
Risk/Return
0
Situation Problem Solution How It Works Benefits Next Steps
SITUATION > Cost of Capital
• If I invest (lend) a ($)
dollar with you today…
1.When will you give it
back to me?
2.How much will you pay
me (INTEREST) for the
use of my ($) dollar.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Cost of Capital
• Interest Paid to a Lender or
Dividends Paid to an
Investor is the “Cost of
Capital” to a Company.
• The Cost of Capital is what
a Business REPAYS its
Lenders or RETURNS to its
Owners.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > (ROI) Return On Invested Capital
• The SOLE Reason Companies Exist
is to:
– MAXIMIZE the (ROI)
Return On Invested Capital
– Which is placed “At-Risk”
by the Owner(s) and
Investor(s)
– In Excess of the Company’s
Cost of Capital.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > (ROI) Return On Invested Capital
Return on Investment = (Productivity) x (Efficiency)
Productivity =(Total Revenue) / (Total Assets)
Efficiency =(Total Profit) / (Total Revenue)
Situation Problem Solution How It Works Benefits Next Steps
Dupont ROIReturn on Invested Capital
SITUATION > (ROI) Return On Invested Capital
• Productivity is a Ratio of Output to Input.
• In Financial terms, this is the ratio of sales to investment and represents the ability to generate revenue for a given level of assets.
• How many sales ($) dollars can I GENERATE from one (1$) dollar of assets?
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > (ROI) Return On Invested Capital
• Efficiency is a measure of a company’s ability to CONTROL EXPENSES at a given level of activity.
• In Financial terms, this is the ratio of earnings (net income) to sales.
• How much money can I RETAIN from one (1$) dollar of sales?
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > (ROI) Return On Invested Capital > Chart of Accounts
Account Number Account Financial Statement Normal Sign Description
1-0000 Assets Balance Sheet
Debit Total Capital
2-0000 Liabilities Balance Sheet
Credit Source of Capital
3-0000 Equity“Net Worth”
Balance Sheet
Credit Source of Capital
4-0000 IncomeRevenue
Income Statement
Credit Sales Income
5-0000 Cost of Goods Sold
Income Statement
Debit Production Costs
6-0000 Expenses Income Statement
Debit Overhead Costs
Situation Problem Solution How It Works Benefits Next Steps
Chart of Accounts
SITUATION > (ROI) Return On Invested Capital > RMA Diagram
Account Number
Account Financial Statement
Period Start 1st Period 2nd Period 3rd Period 4th Period Period End
4-0000 Revenue
Income
Income
Statement $2.78 $3.25 $3.78 $4.42
5-0000 Cost of
Goods Sold
Income
Statement
39% or
$1.08$1.27 $1.47 $1.72
6-0000 Expenses Income
Statement
55% or
$1.53 $1.79 $2.08 $2.43
∆ Cash Flow Cash Flow 6% or
$0.17$0.19 $0.23 $0.27
1-0000 Assets Balance
Sheet $1.00 $1.17 $1.36 $1.59 $1.86 $1.86
2-0000 Liabilities Balance
Sheet .50 .50 .50 .50 .50 .50
3-0000 Net
Worth
Balance
Sheet .50 .67 .86 1.09 1.36 $1.36
Situation Problem Solution How It Works Benefits Next Steps
RMA Diagram
SITUATION > (ROI) Return On Invested Capital
• The SOLE Reason Companies Exist is to
MAXIMIZE the (ROI) Return On Invested
Capital which is placed “At-Risk” by the
Owner(s) and Investor(s) in Excess of
the Company’s Cost of Capital.
• Those of you who work in a business are
Responsible to the Owner’s for insuring
that their CAPITAL BUDGETED for the
purchase of Assets and Projects
generates a return which is greater than
the cost of that capital.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Capital Budgeting
• The Process and Tools used for Evaluating the Desirability of Long-term Assets and Projects.
• Insures that EVERY Project purchased or performed by the company generates cash flows which exceed the cost of the project by more than the company’s cost of capital.
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
Do More with Less
Manage for Value
Time Value of Money
Cost of Capital
ROI
Capital Budgeting
SITUATION > Capital Budgeting
Period Start 1st Period 2nd Period 3rd Period 4th Period
CashFlows -$1.00 $2.78 $3.25 $3.78 $4.42
Cost of Capital 10%
BreakEven
.27 Years3.5
Months
NPV $9.16
EfficiencyProfitability
916% ROI
Situation Problem Solution How It Works Benefits Next Steps
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
PROBLEM > Capital is Scarce
• In today’s business climate, capital is scarce and the stakes could not be any higher. Waste money, lose your job.
• In order to do their jobs, functional IT managers must “run the gauntlet” of IT governance to receive funding for capital projects.
Situation Problem Solution How It Works Benefits Next Steps
Capital is Scarce
Poor Methodology
Good Ideas. Wasted Time.
PROBLEM > Scope, Methodology, & Business Case
• Functional IT Managers are focused on Functional IT Requirements.
• Requests for Capital FAIL because:
– Project SCOPE Not Directly Tied to Strategic Plan.
– Poor METHODOLOGY Drives Invalid Assumptions (Outcomes, Risks, Benefits, etc.).
– Project Plan does not include a Strong BUSINESS CASE.
Situation Problem Solution How It Works Benefits Next Steps
Capital is Scarce
Poor Methodology
Good Ideas. Wasted Time.
PROBLEM > Good Ideas. Wasted Time
• IT Managers and their staffs have good ideas.
• However, they waste a lot of time building strong technical documentation that never gets Executive Sponsorship.
• What’s needed is A PROCESS to tie their technical knowledge into a Scope, Methodology, Business Case Model.
Situation Problem Solution How It Works Benefits Next Steps
Capital is Scarce
Poor Methodology
Good Ideas. Wasted Time.
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
SOLUTION
Situation Problem Solution How It Works Benefits Next Steps
SCOPE Methodology Business Case+ +
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
HOW IT WORKS > Scope > Financial Analysis
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case
Capital Markets (Lenders)
Liquidity: Current Ratio, Acid Test Ratio
Leverage:Debt to Assets, Debt to Capitalization,
Debt to Equity
Debt Service:Interest Coverage, Principal and
Interest Coverage
Management
Profitability:Return on Assets, Earnings Before
Interest and Taxes (EBIT)
Operational Ratios:
Gross Margin, Profit Margin (Efficiency), Operating Expenses, Profit Contribution of Products, Asset Management, Asset
Turnover (Productivity), Working Capital, Inventory Turnover, Accounts
Receivable, Accounts Payable
Shareholders (Owners)
Profitability:
Return on Owners Equity (NetWorth), Return on Common Equity, Earnings
per Share
Market Indicators:Price to Earnings (P/E) Ratio, Market to
Book Value Ratio
Disposition of Earnings:
Cash flow per share, Dividends per share, Dividend Yield, Payout to
Retained Earnings Ratio, Dividend Coverage
HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)
capital
humanresources
materialequipment
changingtechnology
Finance
HumanResources
Stock RoomPurchasing
Research &Development
ProgramManagement
DesignEngineering
OperationsManufacturing
Testing
BusinessAnalysts
Management
InformationServices
DistributionOrder Entry
Sales &MarketingCustomer
budgets
staff
supplies
designs
strategy
support
new products
feedback
services
earnings
shareholdervalue
products
services
customerorders
requirementsfeedback
GovernmentRegulations
PoliticalParties
EconomicIndicators
CulturalShifts
InternationalAffairs
CapitalMarkets
LaborMarkets
Suppliers
EmergingTechnologies
Shareholders
Customers
Competitors
products features services costs
Situation Problem Solution How It Works Benefits Next Steps
HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)
Impact
Pro
babili
ty
Risk
Risk
Risk
RiskRisk
RiskRisk
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case
HOW IT WORKS > Scope > Scorecards
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case
Targets
Strategic Objectives Measurements Yr 1 Yr 2 Yr 3
Financial
Maximum ReturnsUtilization of AssetsRevenue Growth
Return on Equity (%)Utilization Rates (%)
Change in Revenue (%)
127
11
138
11
149
11
External
Customer RetentionCustomer ServiceCustomer Relations
Retention (%)Survey Rating (%)
Self Initiated Call (%)
758535
758840
759045
Internal
Fast DeliveryEffective ServiceOptimal CostResource Utilization
Turnaround Time (min)1st Time Resolution (%)
Cost of Sales (%)Productivity Indicator (%)
15m685060
14m694862
13m704664
Learning
High Skill Level Skill Set Ratio (%) 65 67 69
Employee Satisfaction Survey Rating (%) 85 88 90
Outstanding Leaders 5 Point Ranking 4.5 4.7 4.9
HOW IT WORKS > Methodology > PMI® Knowledge Areas
IntegrationManagement
ScopeManagement
TimeManagement
CostManagement
QualityManagement
ResourceManagement
CommunicationManagement
RiskManagement
ProcurementManagement
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case
HOW IT WORKS > Business Case Development
BusinessCase
Development
Overview
Title and Subtitle To and From Date Subject andPurpose
Disclaimer ExecutiveSummary
Introduction
Methods Financial Metrics Assumptions Scope andBenefits
Cost/BenefitModel
Data Sources andMethods
Impacts Financial Model Cash FlowStatement
Analysis ofResults
Non FinancialBenefits
Risk Risk Analysis SensitivityAnalysis
Contingencies andDependencies
Summary Conclusions Recommendations
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps
BENEFIT > Results & Consequences
Result: Consequence:
Contribution to Strategic Business Objective
Net Benefit
Tangible but non financial benefit
Cash Inflow
Avoided Cost Cost Outcomes
Cost Decrease Cost Outcomes
Continuing Cost Cost Outcomes No Change
Cost Increase Cost Outcomes Net Cost
Situation Problem Solution How It Works Benefits Next Steps
BENEFITS > Benefit Measurement
Situation Problem Solution How It Works Benefits Next Steps
Step 1: Define a measurement for each benefit:Benefit =>
Measurement to be used =>
Description of Measurement =>
Units of Measurement ($,%,etc)
Update Frequency:M for Monthly, Q for Quarterly, A for Annual, etc.
Degree of Reliability:V for Very Reliable, M for Medium Reliability, L for Low Reliability
Sets Objective:Degree of usefulness in establishing objective - High, Medium or Low
Ability to Benchmark:H for High, M for Medium, L for LowResponsibility Location:Team, Project, Department, Manager, etc.
Degree of Fit:(within the organization) High, Medium or LowDegree of Support:Available support (IT, Finance, etc.) in place - Yes or No
Step 2: Define the sources for the measurement:Internal documents / reports
External documents / reports
Special studies
Programs
Databases
Other
Step 3: Define how the measurement is derived and “accounted “for:
Calculation Required:
Assumptions in Calculation:
Availability of Data: Currently Available, Requires Research, Not Available
Benefit Measurement
OVERVIEW
Situation
Solution
Benefits
Problem
How It works
Next Steps
Situation Problem Solution How It Works Benefits Next Steps