lecture04 slides

Mgt 610 Strategic Perspectives on Project Management

(c) 2013, Thomas Lechler. All rights reserved. For academic use only. 1

MGT610

Lecture 4

Elements of the Project Value Scorecard

Dr. Thomas Lechler Phone: (201) 216-8174

Babbio Center 636 FAX: (201) 216-5385

email: [email protected]



Lecture 4: Topics and Objectives

Implementing a Project Value Strategy by Applying

Project Value Scorecard

– Defining project objectives with the SMART principle

– Applying the Principles of the Balanced Scorecard

– Translating Project Value Strategy™ into a Project Value

Scorecard™

– Defining the four project value perspectives

– Evaluating the strategic points of leverage to achieve the

project’s comparative advantage



Definition of Project Strategy

The project perspective, direction, and guidelines on what to do

and how to do it, to achieve the highest competitive advantage

with the project results.

It is the creation and the management of the degrees of freedom in

a project to maximize the competitive advantage of a project.

A strategy stipulates what resources are required, why they are

required, when they are required, where they are required, and

how they will be used to accomplish ends. (Cleland, King, 1988,

p.168)



Defining Project Value Strategy

The Three Strategy-Making Tasks

1. Vision/Mission,

2. Objectives,

3. Strategic Choice



Project Value Strategy: Elements



Mission Statement: Functions

Functions of a Mission Statement (what is our project?)

– To establish a sense of direction within the project and to guide the

project management process by providing a basis for objectives and

strategies

– To influence decisions about resource allocation

– To help build and communicate

among team members a sense of

shared purpose

– To communicate an attractive and

compelling image to external

stakeholders

– To support the core values

of the organization

Key Questions

– What is our project?

– What do we want to become?

– Who are our stakeholders?

– What do our stakeholders

value?



Defining the Project Value Mission

A MISSION STATEMENT should

• Set project apart from others

• Arouse strong sense of organizational identity & business purpose of the project

A well-crafted mission statement

• Must be narrow enough to specify real arena of interest

• Serves as boundary for what to do & not do

• Serves as beacon of where project manager intends to take project

A MISSION STATEMENT includes

• Business Need

• Business Justification



Business Need

• Expressed as a goal or as a problem derived from the corporate strategy. – A goal is a measurable outcome that is desirable to

achieve. • I want to travel to Denver.

• I want to become a Project Management Professional.

– A problem is stated as the gap between “the desired state” and “the current state.”

• I will travel from Newark to Denver.

• I will obtain 4,500 hours of project-related work experience and pass the certification exam to qualify for the Project Management Professional credential.



Project Justification

• States the reason for undertaking the

project. Explains why business need

described in previous header should be solved.

– I want to visit my family in Denver.

– I plan to seek new employment opportunities.

– I plan to relocate to the Denver area.

– I plan to sightsee while in Denver.

• The justification should influence future

decisions about what to do in the project.



Mission Statement: Examples

• Mission Statements

– Otis Elevator: Our mission is to

provide any customer a means

of moving people and things

up, down, and sideways over

short distances with higher

reliability than any similar

enterprise in the world.

– American Red Cross: To

improve the quality of human

life; to enhance self-reliance

and concern for others; and to

help people avoid, prepare for,

and cope with emergencies.

Key Questions





value?



Project Vision

A Project Value Vision

• Identifies activities project intends

to pursue

• Sets fourth long-term project direction

• Provides big picture perspective of

Who WE are, what WE do, where WE are

headed

• Expressed by highlighting the most important

value perspective to be achieved to maximize

the project value



Vision Statement: Functions

• Functions of a Vision Statement (what do we want to become?)

– To articulate where the project hopes to be in the future. Can be

3-5 years out or beyond.

– Vision statements are intended to challenge and energize people

to achieve. They do not necessarily

have to be 100% realistic.

– Vision statements should also

be memorable so that people

keep it in mind when creating

and implementing strategy.

Strategic Key Questions





value?



Vision Statement: Examples

• Vision Statements

– McDonald’s Corporation: McDonald’s vision is to dominate the

global foodservice industry. Global dominance means setting

the performance standard for customer satisfaction while

increasing market share and profitability through our

Convenience, Value, and Execution Strategies.

– Microsoft Corp: One vision drives

everything we do: A computer on

every desk in every home using

great software as an empowering

tool.

Strategic Key Questions





value?



Outcome: Description

• Provides a brief narrative description of

the solution to the identified business need .

• If the product scope has already been defined, then an

appropriate reference to supporting details such as the

operational definition and/or contract should also be

indicated.

– Fly roundtrip to Denver and make arrangements to

stay for two weeks. Visit family. Refer to travel

itinerary for details.

– Fly roundtrip to Denver and make arrangements to

stay for two weeks. Meet with potential employers.

Refer to travel itinerary and meeting schedule for

details



Project Value Statement: Elements Elements of Project Value Statement:

• Mission: Project justification and its business need

• Outcome: Description and project deliverables

• Vision: Value Focus

• Project Value Scorecard: Objectives to implement project value strategy

• Shareholder Value

• Stakeholder Value

• Outcome Value

• Effort Value

• Constraints

• Assumptions

Shareholder

Value

Outcome

Value

Stakeholder

Value

Effort

Value



Outcome: Deliverables

• List the major, tangible components of the

solution (the major outputs) that must be

provided in order for project to be considered complete.

• Use bullet points to indicate each discrete deliverable.

– Roundtrip air transportation tickets

– Hotel reservation confirmation number

– Hotel room

– Rental car

– Three meals per day

• Listed deliverables will vary based upon product

description and the project’s justification.



The Elements of a Project Strategy

Project Mission

– Why is this project undertaken, why does it exist?

– What is the major contribution of the project to the company?

Project Vision

– What is the competitive advantage the project should achieve?

– Clear picture of the project overall goal in a measurable statement.

Project Strategy

– How to achieve the project mission and vision?

– It is the decision framework guiding the implementation.



Strategy Implementation Problems

What you measure is what you get!

• Measurement affects the behavior of employees and

• managers.

Traditional project performance measurements …

like Earned value status reports, critical path etc.

.. give misleading signals

No single measure can provide a clear performance target or

focus attention on the critical areas of the business.



Project Value Scorecard Functions

Project Value Scorecard forces managers to focus on the

handful of measures that are most critical to maximize project

value.

Project Value Scorecard forces managers to develop SMART

objectives.

Project Value Scorecard guards against sub optimization.

Project value scorecards measure the core competencies to

innovate, to efficiently deliver a specific value to the market,

which will lead to higher shareholder value.



Project Value Scorecard Functions

The Project Value Scorecard is a framework to define S.M.A.R.T

objectives:

– Specific – The objective tells exactly what, where, and how the

problem or need is to be addressed.

– Measurable – The objective tells exactly how much, how many,

and how well the problem/need will be resolved.

– Actionable - The objectives can be translated into a specific gap

that can be eliminated .

– Realistic – The objective can be achieved with the available

resources.

– Time – The objective includes a specific date for it's achievement.



Project Value Scorecard

Stakeholders

Effort “To satisfy our

shareholders

and stakeholders,

what project

processes must

we excel at?”

Outcome “To achieve our

vision, how

should we

develop the

outcome?”

Shareholder “To succeed, how

could we

maximize the

project value for

our

shareholders?”

Vision

and

Strategy

“To achieve our

project vision,

which needs of

the stakeholders

are to be

satisfied?”



Project Value Scorecard: Basic Structure

Stakeholder Value

“To achieve our project vision, how should we appear to our

stakeholders?”

Objectives Measures

Targets

Initiatives

During the

project

Project

Close Out

Long term



Project Scorecard Element: Objectives

Definition:

An objective is a statement, derived from a project goal, that

describes a short-term, specific, verifiable condition that must

exist to fulfill the affiliated goal. It is a need expressed as a want or

as a gap.

Examples:

1. Business Shareholder: Positive ROI (Return on

Investment)

2. Project Stakeholder: High satisfaction of end users and/or

customers

3. Project Outcome: High product/ process functionality

4. Project Effort: Fast-to-market



Project Value Scorecard: Measures

Definition:

A project related measure or metrics is a count or a measurement

that can be economically observed and captured. It is a basis for

comparison; a reference point against which other things can be

evaluated; or units to quantify project performance.

Examples:

1. Business Shareholder: ROI

2. Project Stakeholder: #Complaints

3. Project Outcome: #Defects

4. Project Effort: Schedule, budget



Project Value Scorecard: Targets

Definition:

A project target is a reference point and is expressed in units of

the measurement or metrics. It is a specific indicator value to be

accomplished.

Acceptable uncertainty expressed as USL – LSL.

(Upper Specification Limit – Lower Specification Limit)

Target = (USL – LSL) / 2

Examples:

1. Business Shareholder: ROI of 10%

2. Project Stakeholder: 10 complaints

3. Project Outcome: 0 Defects

4. Project Effort: 10% Schedule or budget overrun



Project Value Scorecard: Initiatives

Definition:

A project specific strategic initiative is not visible in the

project network and expresses an exceptional not

standard activity which has to take place in a specific

project to maximize project value.

Examples:

1. Business Shareholder: Top-management presentations

2. Project Stakeholder: Customer relations

3. Project Outcome: Creativity processes

4. Project Effort: Communication structure



Project Value Scorecard: Shareholder Perspective

A shareholder is a person (individual or corporation) who owns shares in the corporation.

Goal: Create the “right” values!

How could we maximize the shareholder value?

– All project activities are related and lead to financial results. – Return on capital employed improves

– Share price increases

Two Basic Strategies

1. Revenue Growth Strategy

– Revenue from new sources

– Customer profitability increases

2. Productivity Strategy

– Reduce operating cost per unit produced

– Improve asset utilization



Generic Shareholder Measures

• Return of Investment (ROI)

• Profitability Index

• Pay back period

• Net Present Value (NPV)

• Free cash flow

• Economic Value added (Profit-Opportunity

costs)



Project Value Scorecard: Stakeholder Perspective

Any party that has an interest ("stake") in a project.

Goal: Satisfy the “right” needs!

Four Categories of Stakeholder (Customer) Concerns:

Time – Quality – Performance and Service – Cost

1. Cost – Product Price, TCOO

2. Time – Lead Time from order to delivery (existing products)

Time to market of new products

3. Quality – Defect level of returned products

On time delivery

4. Performance and Service – % new products

% proprietary products, on time delivery



Generic Stakeholder Measures

Overall stakeholder satisfaction with deliverables in terms of:

• Reliability, Defects, Usability, Response time, Ease of use

• Availability, Flexibility, Intuitiveness, Security

• Easy to understand user documentation

• Application response time (calculated by the system)

• Number of approved business requirements satisfied by the project

Overall client satisfaction with the project team in terms of:

• Responsiveness, Competence, Accessibility, Courteous, Communication

• Credibility, Business knowledge, Reliability/follow through, Professionalism, Training,

• Turnaround time required to respond to client queries and problems, Average time required to resolve issues



Project Value Scorecard: Outcome Perspective

Any tangible or intangible asset a project generates: Process,

product, system, etc.

Goal: Doing the “right” things

Innovativeness and technical performance of outcome is critical.

Can we continue to improve and create value?

How are the TCO affected?

Does the installed or followed process create an acceptable

outcome quality?



Generic Outcome Measures

• Total support costs for x months after solution is complete

• Cost associated with building components for reuse

• Total cost per transaction

• Percentage of deliverables going through quality reviews

• Percentage of deliverable reviews resulting in acceptance the first time

• Number of defects discovered after initial acceptance

• Percentage of deliverables that comply with organization standards

• Number of hours or dollars saved from process improvements

• Number of hours of rework to previously completed deliverables

• Number of client change requests to revise scope



Project Value Scorecard: Effort Perspective

Goal: Doing the things “right”

What must the project do internally to meet its stakeholders’ and

shareholders’ expectation?

• Excellent performance for customers derived from processes,

decisions and actions occurring throughout an organization.

• Focus on those critical activities that enable them to satisfy

customer needs.

• Measures for those processes which have the greatest impact

on stakeholder and shareholder satisfaction.

• Identify and measure project core competencies

• Measures to develop and introduce the next generation of

existing products rapidly



Generic Effort Measures

– Total labor costs vs. non-labor (vs. budget)

– Total cost of employees vs. contract vs. consultant (vs. budget)

– Ideas for cost reductions implemented and cost savings realized

– Actual effort vs. budget (variance)

– Amount of project manager time vs. overall effort hours

– Actual duration vs. budget (variance)

– Effort hours per unit of work/function point

– Work units/function points produced per effort hour

– Effort hours reduced from standard project processes

– Effort hours saved through reuse of previous deliverables, models, components

– Number of process improvement ideas implemented

– Number of best practices identified and applied on the project



Project Value Scorecard: Strategic Framework for Action

Clarifying and Translating

The Vision and Strategy

•Clarifying the vision

•Gaining Consensus

Communicating and

Linking

•Communicating and

Educating

•Setting Goals

•Linking rewards to

performance measures

Strategic Feedback and Learning

•Articulating the shared vision

•Supplying Strategic feedback

•Facilitating strategy review and

learning

Planning and Target Setting

•Setting Targets

•Aligning strategic initiatives

•Allocating resources

•Establishing milestones

Project Value

Scorecard



Planning a Project Strategy – Step 1

• Define your project and its objectives in support of:

• 1. What are the value propositions of the business?

Are they the same like the customer?

• 2. Who are the customers?

• What are the value propositions of the customer?

• 3. How should the products/ processes look like?

What technologies are needed? What are the specifications?

• 4. What resources are needed? What knowledge has to be

• developed? How will this contribute to future value?



Planning a Project Strategy – Step 2

Start with a status analysis of the project definition

What is the project mission, does it need clarification?

Define the project vision, what are the core values?

Assign the objectives to the four value perspectives

Which objectives are missing?

Which measures are missing?

What are the environmental issues?

Activate People



Project Value

Network

Perspective

Objective Measure Target Initiative

Effort On-time SV, SPI SV = 0d +/-

10ed

SPI = 1.0 +/-

0.05

Create bottom-

up schedule

using CPM

techniques

Outcome Authorized

work is fully

completed

Count of

deliverables

formally

accepted by

customer

Promised

deliverables =

formally

accepted

deliverables

Formal

acceptance

criteria

established in

scope

management

plan

Project Scorecard Basic Structure



Project Value

Network

Perspective

Objective Measure Target Initiative

Stakeholders Increase

satisfaction by

creating

quality

# Defects,

Response

time

Acceptable

quality

expressed as

USL – LSL.

Target = (USL –

LSL) / 2

Name of specific

quality activity

performed in the

project

Shareholders Increase

wealth by

receiving

stock

dividends

Free cash

flow

generated

from the

project

Payback

achieved in 12

months +/- 2

months

Establish PMIS

to track project

cashflows from

initiation until 6

months after

project

termination

Basic Scorecard Structure



Summary

• The Project Scorecard is a Planning Tool

• to implement a project strategy

• in form of a project metrics

• which covers all project value areas



Project Value Statement: Constraints

• Significant limitations to alternatives

that can be considered by the project

team in providing the solution to the

business need.

– Identifies the high-level limits (boundaries) that cannot be

crossed by the project team when providing the project’s

solution.

• Use bullet points to indicate each constraint.

– Relocation to Denver is not financially possible unless hiring

employer pays for relocation expenses.

– Interview appointments cannot be missed (due to late arrival at

the interview site).



Project Value Statement: Assumptions

• Identify significant factors that for planning purposes have been assumed to be real and/or true. – These high-level assumptions will be useful in making future

decisions about work being performed by the project.

• If one of these assumptions turns out to be false, then – the business need would no longer be relevant, and/or

– the product description would no longer provide a feasible solution to the business need.

• Use bullet points to indicate each assumption. – Employers in Denver will pay relocation expenses for the type of

job I am seeking.

– Interviewers will comply with EOE/AA guidelines and not discriminate against a protected class of potential applicants.



Project Value Statement: Process

1. Define Project Mission

• Assumption is mission is somewhat given

• Assumption of project value is often not clearly defined

2. Define Project Vision

3. Describe Project Outcome

– Outcome

– Deliverables

4. Quantify Project Value

– Stakeholder Value

– Shareholder Value

– Outcome Value

– Effort Value

5. Document Key Assumptions and Constraints

1

2

3

4

5

Minimum of 2

review loops