Chapter 4: Project Integration Management

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Learning Objectives
Describe an overall framework for project integration management as it relates to the other project management knowledge areas and the project life cycle. Explain the strategic planning process and apply different project selection methods. Explain the importance of creating a project charter to formally initiate projects. Discuss the process of creating a preliminary project scope statement.
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Learning Objectives
Describe project management plan development, including content, using guidelines and templates for developing plans, and performing a stakeholder analysis to help manage relationships. Explain project execution, its relationship to project planning, the factors related to successful results, and tools and techniques to assist in project execution.

Describe the process of monitoring and controlling project work.

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Learning Objectives
Understand the integrated change control process, planning for and managing changes on information technology projects, and developing and using a change control system. Explain the importance of developing and following good procedures for closing projects. Describe how software can assist in project integration management.
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The Key to Overall Project Success: Good Project Integration Management

Project managers must coordinate all of the other knowledge areas throughout a projects life cycle. Many new project managers have trouble looking at the big picture and want to focus on too many details. (See opening case for a real example.) Project integration management is not the same thing as software integration.

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Project Integration Management Processes

Develop the project charter: Work with stakeholders to create the document that formally authorizes a project the charter. Develop the preliminary project scope statement: Work with stakeholders, especially users of the projects products, services, or results, to develop the high-level scope requirements and create a preliminary project scope statement. Develop the project management plan: Coordinate all planning efforts to create a consistent, coherent documentthe project management plan.
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Project Integration Management Processes (contd)

Direct and manage project execution: Carry out the project management plan by performing the activities included in it. Monitor and control the project work: Oversee project work to meet the performance objectives of the project. Perform integrated change control: Coordinate changes that affect the projects deliverables and organizational process assets. Close the project: Finalize all project activities to formally close the project.
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Strategic Planning and Project Selection

Strategic planning involves determining long-term objectives, predicting future trends, and projecting the need for new products and services. Organizations often perform a SWOT analysis:
Strengths, Weaknesses, Opportunities, and Threats

As part of strategic planning, organizations should:

Identify potential projects.

Use realistic methods to select which projects to work on.

Formalize project initiation by issuing a project charter.
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Identifying Potential Projects

Many organizations follow a planning process for selecting IT projects. Its crucial to align IT projects with business strategy. Research shows that:
Supporting explicit business objectives is the number one reason cited for investing in IT projects. Companies with consolidated IT operations have a 24 percent lower operational cost per end user. The consistent use of IT standards lowers application development costs by 41 percent per user.*
*Cosgrove Ware, Lorraine, By the Numbers, CIO Magazine (www.cio.com) (September 1, 2002).
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Figure 4-1. Information Technology Planning Process

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Methods for Selecting Projects

There is usually not enough time or resources to implement all projects. Methods for selecting projects include:
Focusing on broad organizational needs. Categorizing information technology projects. Performing net present value or other financial analyses. Using a weighted scoring model. Implementing a balanced scorecard.

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Focusing on Broad Organizational Needs

It is often difficult to provide strong justification for many IT projects, but everyone agrees they have a high value. It is better to measure gold roughly than to count pennies precisely. Three important criteria for projects:
There is a need for the project. There are funds available for the project. There is a strong will to make the project succeed.

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Categorizing IT Projects
One categorization assesses whether the project provides a response to:
A problem An opportunity A directive

Another categorization is based on the time it will take to complete a project or the date by which it must be done. Another categorization is the overall priority of the project.

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Financial Analysis of Projects

Financial considerations are often an important aspect of the project selection process.
Three primary methods for determining the projected financial value of projects:
Net present value (NPV) analysis

Return on investment (ROI)

Payback analysis
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Net Present Value Analysis

Net present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.

Projects with a positive NPV should be considered if financial value is a key criterion.
The higher the NPV, the better.

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NPV Calculations
Determine estimated costs and benefits for the life of the project and the products it produces. Determine the discount rate (check with your organization on what to use).

Calculate the NPV (see text for details).

Some organizations consider the investment year as year 0, while others consider it year 1. Some people enter costs as negative numbers, while others do not. Make sure to identify your organizations preferences.
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Calculaion Methods and Formulas The first step involved in the calculation of NPV is the determination of the present value of net cash inflows from a project or asset. The net cash flows may be even (i.e. equal cash inflows in different periods) or uneven (i.e. different cash flows in different periods). When they are even, present value can be easily calculated by using the present value formula of annuity.
if they are uneven, we need to calculate the present value of each individual net cash inflow separately. In the second step we subtract the initial investment on the project from the total present value of inflows to arrive at net present value. Thus we have the following two formulas for the calculation of NPV: When cash inflows are even: NPV = R ((1 (1 + i)-n)/i) Initial Investment In the above formula, R is the net cash inflow expected to be received each period; i is the required rate of return per period; n are the number of periods during which the project is expected to operate and generate cash inflows.
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 Decision Rule Accept the project only if its NPV is positive or zero. Reject the project having negative NPV. While comparing two or more exclusive projects having positive NPVs, accept the one with highest NPV. Examples Example 1: Even Cash Inflows: Calculate the net present value of a project which requires an initial investment of $243,000 and it is expected to generate a cash inflow of $50,000 each month for 12 months. Assume that the salvage value of the project is zero. The target rate of return is 12% per annum. Solution We have, Initial Investment = $243,000 Net Cash Inflow per Period = $50,000 Number of Periods = 12 Discount Rate per Period = 12% 12 = 1%

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 Net Present Value = $50,000 ( (1 (1 + 1%)^-12) 1%) $243,000 = $50,000 ( (1 1.01^-12) 0.01) $243,000 $50,000 ((1 0.887449) 0.01) $243,000 $50,000 (0.112551 0.01) $243,000 $50,000 11.25510 $243,000 $562,754 $243,000 $319,754

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 When cash inflows are uneven: NPV =[R1/(1 + i)1+R2/(1 + i)2+R3/(1 + i)3+ ...] Initial Investment Where, i (or Discount rate)is the target rate of return per period; R1 is the net cash inflow during the first period; R2 is the net cash inflow during the second period; R3 is the net cash inflow during the third period, and so on ...
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 Example 2: Uneven Cash Inflows: An initial investment on plant and machinery of $8,320 thousand is expected to generate cash inflows of $3,411 thousand, $4,070 thousand, $5,824 thousand and $2,065 thousand at the end of first, second, third and fourth year respectively. At the end of the fourth year, the machinery will be sold for $900 thousand. Calculate the present value of the investment if the discount rate is 18%. Round your answer to nearest thousand dollars. Solution Calculate the PV factor for each year first The formula for the present value factor is used to calculate the present value per dollar that is received in the future. PV=1/(1+i) ^n i is the target rate of return per period n number of period PV Factors: Year 1 = 1 (1 + 18%)^1 0.8475 Year 2 = 1 (1 + 18%)^2 0.7182 Year 3 = 1 (1 + 18%)^3 0.6086 Year 4 = 1 (1 + 18%)^4 0.5158
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 The rest of the problem can be solved more efficiently in table format as show below:
Year
Net Cash Inflow Salvage Value Total Cash Inflow Present Value Factor Present Value of Cash Flows Total PV of Cash Inflows Initial Investment Net Present Value

1
$3,411

2
$4,070

3
$5,824

4
$2,065 900

$3,411
0.8475 $2,890.68 $10,888 8,320 $2,568

$4,070
0.7182 $2,923.01

$5,824
0.6086 $3,544.67

$2,965
0.5158 $1,529.31

thousand

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Figure 4-2. Net Present Value Example

Cash flow=benefits -costs

Note that totals are equal, but NPVs are not because of the time value of money. Project 2
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Return on Investment
Return on investment (ROI) is calculated by subtracting the project costs from the benefits and then dividing by the costs. ROI = (Net Profit / Cost of Investment) x 100
If we have discount rate: ROI = ((total discounted benefits - total discounted costs) /total discounted costs)*100

The higher the ROI, the better. Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects.
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 For example, an investor buys $1,000 worth of stocks and sells the shares two years later for $1,200. The net profit from the investment would be $200 and the ROI would be calculated as follows: ROI = (200 / 1,000) x 100 = 20%

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Payback Analysis
Another important financial consideration is payback analysis. The payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. Payback occurs when the cumulative discounted benefits and costs are greater than zero.
When cash inflows are even Payback=Initial investment/cash inflows per period
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 When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period: Payback Period = A +(B/C) In the above formula, A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash flow during the period after A
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Examples
Example 1: Even Cash Flows Company C is planning to undertake a project requiring initial investment of $105 million. The project is expected to generate $25 million per year for 7 years. Calculate the payback period of the project. Solution Payback Period = Initial Investment Annual Cash Flow = $105M $25M = 4.2 years

Example 2: Uneven Cash Flows A Company is planning to undertake another project requiring initial investment of $50 million and is expected to generate $10 million in Year 1, $13 million in Year 2, $16 million in year 3, $19 million in Year 4 and $22 million in Year 5. Calculate the payback value of the project.

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 Solution
Year 0 Cash Flow (50) Cash Flow (50)

1
2 3 4

10
13 16 19

(40)
(27) (11) 8

22

30

= 3 + (|-$11M| $19M) = 3 + ($11M $19M) 3 + 0.58 3.58 years

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Figure 4-3. JWD Consulting NPV Example

Multiply by the discount factor each year, then subtract costs from cumulative benefits to get NPV. Note: See the template called business_case_financials.xls.
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Figure 4-4. Charting the Payback Period

Excel file

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Weighted Scoring Model

A weighted scoring model is a tool that provides a systematic process for selecting projects based on many criteria. Steps in identifying a weighted scoring model:
1. Identify criteria important to the project selection process. 2. Assign weights (percentages) to each criterion so they add up to 100 percent. 3. Assign scores to each criterion for each project. 4. Multiply the scores by the weights to get the total weighted scores.

The higher the weighted score, the better.

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Figure 4-5. Sample Weighted Scoring Model for Project Selection

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Project Charters
After deciding what project to work on, it is important to let the rest of the organization know. A project charter is a document that formally recognizes the existence of a project and provides direction on the projects objectives and management. Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project; a signed charter is a key output of project integration management.
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Figure 4-6. Project Integration Management Overview

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Preliminary Scope Statements

A scope statement is a document used to develop and confirm a common understanding of the project scope. It is an important tool for preventing scope creep:
The tendency for project scope to keep getting bigger.

A good practice is to develop a preliminary or initial scope statement during project initiation and a more detailed scope statement as the project progresses.
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Contents of a Preliminary Scope Statement

Project objectives Product or service requirements and characteristics Project boundaries Deliverables Product acceptance criteria Project assumptions and constraints Organizational structure for the project Initial list of defined risks Summary of schedule milestones Rough order of magnitude cost estimate Configuration management requirements Description of approval requirements

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Project Management Plans

A project management plan is a document used to coordinate all project planning documents and help guide a projects execution and control. Plans created in the other knowledge areas are subsidiary parts of the overall project management plan.

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Attributes of Project Plans

Just as projects are unique, so are project plans.

Plans should be:

Dynamic Flexible Updated as changes occur

Plans should first and foremost guide project execution by helping the project manager lead the project team and assess project status.
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Common Elements of a Project Management Plan

Introduction or overview of the project. Description of how the project is organized.

Management and technical processes used on the project.

Work to be done, schedule, and budget information.

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Table 4-1. Sample Contents for a Software Project Management Plan (SPMP)

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Stakeholder Analysis
A stakeholder analysis documents important (often sensitive) information about stakeholders such as:
Stakeholders names and organizations. Their roles on the project. Unique facts about each stakeholder. Their level of influence on and interest in the project.

Suggestions for managing relationships with each stakeholder.

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Table 4-2. Sample Stakeholder Analysis

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Project Execution
Project execution involves managing and performing the work described in the project management plan. The majority of time and money is usually spent on execution. The application area of the project directly affects project execution because the products of the project are produced during project execution.

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Coordinating Planning and Execution

Project planning and execution are intertwined and inseparable activities.
Those who will do the work should help to plan the work. Project managers must solicit input from the team to develop realistic plans.

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Leadership and a Supportive Culture

Project managers must lead by example to demonstrate the importance of creating and then following good project plans. Organizational culture can help project execution by:
Providing guidelines and templates. Tracking performance based on plans.

Project managers may still need to break the rules to meet project goals, and senior managers must support those actions.

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Important Skills for Project Execution

General management skills such as leadership, communication, and political skills.
Product, business, and application area skills and knowledge. Use of specialized tools and techniques.

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Monitoring and Controlling Project Work

Changes are inevitable on most projects, so its important to develop and follow a process to monitor and control changes. Monitoring project work includes collecting, measuring, and disseminating performance information. Two important outputs of monitoring and controlling project work include recommended corrective and preventive actions.
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Integrated Change Control

Three main objectives are:

Influence the factors that create changes to ensure that changes are beneficial.
Determine that a change has occurred. Manage actual changes as they occur.

A baseline is the approved project management plan plus approved changes.

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Change Control System

A formal, documented process that describes when and how official project documents and work may be changed. Describes who is authorized to make changes and how to make them.

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Change Control Boards (CCBs)

A formal group of people responsible for approving or rejecting changes on a project. CCBs provide guidelines for preparing change requests, evaluate change requests, and manage the implementation of approved changes. CCBs include stakeholders from the entire organization.

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Closing Projects
To close a project, you must finalize all activities and transfer the completed or cancelled work to the appropriate people. Main outputs include:
Administrative closure procedures.
Contract closure procedures. Final products, services, or results. Organizational process asset updates.
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Using Software to Assist in Project Integration Management

Several types of software can be used to assist in project integration management:
Word processing software creates documents. Presentation software creates presentations. Spreadsheets or databases perform tracking. Communication software such as e-mail and Web authoring tools facilitate communications. Project management software can pull everything together and show detailed and summarized information.
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Chapter Summary
Project integration management includes:
Developing a project charter.
Developing a preliminary project scope statement. Developing a project management plan. Directing and managing project execution. Monitoring and controlling project work.

Performing integrated change control.

Closing the project.
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