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What is a Project?
‡ Project Defined
±A complex, nonroutine, one-time effort limited by time,
budget, resources, and performance specifications
designed to meet customer needs.
‡ Major Characteristics of a Project
±Has an established objective.
±Has a defined life span with a beginning and an end.
±Requires across-the-organizational participation.
±Involves doing something never been done before.
±Has specific time, cost, and performance
requirements.

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Programs versus Projects


‡ Program Defined
±A series of coordinated, related, multiple projects that
continue over an extended time and are intended to
achieve a goal.
±A higher level group of projects targeted at a common
goal.
±Example:
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Comparison of Routine Work with Projects

 

    
{aking class notes Writing a term paper
Daily entering sales receipts into Setting up a sales kiosk for a
the accounting ledger professional accounting meeting
Responding to a supply-chain Developing a supply-chain
request information system
Practicing scales on the piano Writing a new piano piece
Routine manufacture of an Apple Designing an iPod that is
iPod approximately 2 X 4 inches,
interfaces with PC, and stores
10,000 songs
Attaching tags on a manufactured Wire-tag projects for GE and
product Wal-Mart

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Project Life Cycle

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{he Challenge of Project Management
‡ {he Project Manager
±Manages temporary, non-repetitive activities and
frequently acts independently of the formal
organization.
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±Must induce the right people at the right time to
address the right issues and make the right decisions.

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{he Importance of Project Management
‡ Factors leading to the increased
use of project management:
±Compression of the product life cycle
±Global competition
±Knowledge explosion
±Corporate downsizing
±Increased customer focus
±Rapid development of {hird World
and closed economies
±Small projects that represent big
problems

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Integrated Project Management Systems
‡ Problems resulting from the use of piecemeal
project management systems:
±Do not tie together the overall strategies of the firm.
±Fail to prioritize selection of projects by their
importance of their contribution to the firm.
±Are not integrated throughout the project life cycle.
±Do not match project planning and controls with
organizational culture to make appropriate
adjustments in support of project endeavors.

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Integrated
Management of
Projects

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{he {echnical and
Sociocultural
Dimensions
of the Project
Management
Process

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An Overview of Project Management.

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PROJEC{ MANAGEMEN{ S{RUC{URES

‡ ORGANISA{IONS HAVE GENERALLY S{RUGGLED


{O IN{EGRA{E MANAGEMEN{ OF PROJEC{S
WHILE CONDUC{ING ONGOING BUSINESS
‡ REASONS:
± ORGANISA{IONS {YPICALLY SE{ UP {O DEAL WI{H EVERY
DAY, REPE{I{IVE WORK
± PROJEC{S ARE MUL{IDISCIPLINARY WHEREAS MOS{
ORGANISA{IONS ARE FUNC{IONAL IN NA{URE WI{H
CLEARLY DELINEA{ED BOUNDARIES AND MANAGERIAL
ROLES

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FUNC{IONAL ORGANISA{IONS

‡ PROJEC{ IMPLEMEN{ED WI{HIN EXIS{ING


ORGANISA{IONAL HIERARCHY
‡ DIFFEREN{ PAR{S OF {HE PROJEC{ ARE GIVEN
{O {HE RELEVAN{ DIVISIONS ± MANAGEMEN{
{HROUGH NORMAL CHANNELS
‡ ADVAN{AGES:
± NO CHANGE {O {HE ORGANISA{ION
± EFFEC{IVE USE OF QUALIFIED PERSONNEL
± CAN FOCUS MORE EFFEC{IVELY {HROUGH EXPER{ISE
± MAIN{AIN EXS{ING CAREER PA{HS

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FUNC{IONAL ORGANISA{IONS

‡ DISADVAN{AGES:
± LACK OF FOCUS AND PRIORI{ISA{ION
± LACK OF IN{EGRA{ION ACROSS FUNC{IONS
± LONGER {O COMPLE{E PROJEC{S - SLOWER
COMMUNICA{ION
± POOR MO{IVA{ION AMONGS{ S{AFF ± NO BUY IN

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DEDICA{ED {EAMS

‡ INDEPENDEN{ {EAMS AC{ING SEPARA{E {O {HE RES{ OF


{HE ORGANSIA{ION
‡ SEPARA{E PROJEC{ MANAGER ± INDEPENDENCE AND
FREEDOM VARIES (GIVEN RISE {O {HE MAVERICK µSKUNK
WORK¶ {EAMS)
‡ ADVAN{AGES:
± MINIMUM DISRUP{ION {O {HE ORGANISA{IONAL
S{RUC{URE
± PROJEC{S GE{ COMPLE{ED MORE QUICKLY
± HIGH LEVELS OF MO{IVA{ION
± PO{EN{IAL FOR CROSS-FUNC{IONAL IN{EGRA{ION

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DEDICA{ED {EAMS

‡ DISADVAN{AGES:
±EXPENSIVE
±PROJEC{I{IS ({EAMS SEE {HEMSELVES AS
DIS{INC{ FROM {HE ORGANISA{ION)
±ONLY SELEC{IVE EXPER{ISE BROUGH{ {O
BEAR ON PROBLEMS
±REIN{EGRA{ION OF {EAMS MEMBERS IN{O {HE
ORGANISA{ION

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MA{RIX S{RUC{URE

‡ HORIZON{AL S{RUC{URE LAID ON {OP OF HIERARCHY


‡ PROJEC{ {EAM MEMBERS REPOR{ {O BO{H {HE PROJEC{
MANAGER AND FUNC{IONAL MANAGER
‡ {YPES OF MA{RIX S{RUC{URES
± WEAK MA{RIX (PROJEC{ MANAGER AC{S AS PROJEC{
ADMINIS{RA{OR ± FUNC{IONAL MANAGERS CALL {HE SHO{S)
± BALANCED MA{RIX (PROJEC{ AND FUNC{IONAL MANAGERS
WORK CLOSELY {OGE{HER ± PROJ MANAGER ES{ABLISHES
OVERALL PLAN, IN{EGRA{ES CON{RIBU{IONS E{C)
± S{RONG MA{RIX (PROJEC{ MANAGER HAS MAJOR SAY)

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MA{RIX S{RUC{URE

‡ ADVAN{AGES:
± SHARING OF RESOURCES ON AN AS-NEEDED BASIS
± S{ONGER PROJEC{ FOCUS
± ACCESS {O FULL EXPER{ISE OF {HE ORGANISA{ION
± NO DIFFICUL{Y IN REIN{EGRA{ION

‡ DISADVAN{AGES:
± CONFLIC{ BE{WEEN PROJEC{ AND FUNC{IONAL MANAGERS
± COMPE{I{ION FOR SCARE RESOURCES
± LACK OF CLEAR AU{HORI{Y ± EMPLOYEES REPOR{ {O
MUL{IPLE BOSSES
± DIFFICUL{ {O REACH CONCENSUS ACROSS MUL{IPLE DIVISIONS

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CHOOSING {HE APPROPRIA{E S{RUC{URE

‡ HOW IMPOR{AN{ IS PROJEC{ MANAGEMEN{ {O {HE


ORGANISA{ION?
‡ HOW MUCH WORK IS PROJEC{ BASED?
‡ WHA{ IS {HE RESOURCE AVAILIBILI{Y?
‡ SEVEN FAC{ORS HAVE BEEN ES{ABLISHED {O DE{ERMINE
{HE {YPE OF ORGANISA{ION ({HE HIGHER {HE LEVELS, {HE
MORE {HE NEED FOR AU{ONOMOUS PROJ MANAGEMEN{
± Project size; Strategic Importance; Novelty and Need for Innovation;
Need for Integration (number of departments involved); Environmental
Complexity (external interfaces); Budget and {ime Constraints; Stability
of Resource Requirements.

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ORGANISA{IONAL CUL{URE

‡ ORG CUL{URE IS {HE GLUE {HA{ BINDS {HE


ORGANISA{ION
‡ SHARED NORMS, BELIEFS, VALUES AND ASSUMP{IONS
‡ 10 DIMENSIONS:
± MEMBER (JOB VS ORGANISA{ION)
± {EAM EMPHASIS (INDIVIDUAL VS GROUP)
± MANAGEMEN{ FOCUS ± ({ASK VS PEOPLE)
± UNI{ IN{EGRA{ION (INDEPENDEN{ VS IN{ERDEPENDEN{)
± CON{ROL (LOOSE VS {IGH{)
± RISK {OLERANCE (LOW VS HIGH)

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ORGANISA{IONAL CUL{URE

± REWARD CRI{ERIA (PERFORMANCE VS O{HER)


± CONFLIC{ {OLERANCE (LOW VS HIGH)
± MEANS VS ENDS (MEANS VS ENDS)
± OPEN-SYS{EMS FOCUS (IN{ERNAL VS EX{ERNAL)
‡ FUNC{IONS OF CUL{URE:
± PROVIDES SENSE OF IDEN{I{Y
± LEGI{IMISES MANAGEMEN{ SYS{EM
± HELPS CLARIFY AND REINFORCE S{ANDARDS OF BEHAVIOUR
± HELPS CREA{E SOCIAL ORDER

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ORGANISA{IONAL CUL{URE

‡ IMPLICA{IONS FOR PROJEC{ MANAGEMEN{:


± MEMBER ID ± ORGANISA{ION
± {EAM EMPHASIS ± GROUP
± MANAGEMEN{ FOCUS ± MORE PEOPLE FOCUS
± UNI{ IN{EGRA{ION ± HIGH IN{ERDEPENDANCE
± CON{ROL ± MORE LOOSE
± RISK {OLERANCE ± HIGH
± REWARD CRI{ERIA ± PERFORMANCE ORIEN{ED
± CONFLIC{ {OLERANCE ± HIGH
± MEANS-ENDS ± EVEN SPLI{
± OPEN-SYS{EM FOCUS ± EX{ERNAL ENVIRONMEN{

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Why Project Managers Need to Understand


the Strategic Management Process

‡ Changes in the organization¶s mission and


strategy
±Project managers must respond to changes with
appropriate decisions about future projects and
adjustments to current projects.
±Project managers who understand their organization¶s
strategy can become effective advocates of projects
aligned with the firm¶s mission.

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Applying a Selection Model
‡ Project Classification
±Deciding how well a strategic or operations project fits
the organization¶s strategy.
‡ Selecting a Model
±Applying a weighted scoring model to bring projects to
closer with the organization¶s strategic goals.
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Benefits of Project Portfolio Management

‡ Builds discipline into project selection process.


‡ Links project selection to strategic metrics.
‡ Prioritizes project proposals across a common set of
criteria, rather than on politics or emotion.
‡ Allocates resources to projects that align with strategic
direction.
‡ Balances risk across all projects.
‡ Justifies killing projects that do not support organization
strategy.
‡ Improves communication and supports agreement on
project goals.

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Portfolio of Projects by {ype

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{V    {
<Can It Work?´
-Marketability ?
-Demand ?
-{echnically ?
-Financially ?
-Economically ?
-Administratively ?

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PROJEC{ ANALYSIS
±Determining facts
±Making reasonable assumptions
±Analyzing risks
±Making recommendations to minimize risks

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FINANCING & INVES{OR CONSIDERA{IONS:
Public v. Conventional
   consider: !"
  also
‡ market risk consider:
‡ borrower risk ‡ public purpose
‡ project risk ‡ regulatory compliance
‡ portfolio risk ‡ affordability
‡ gap analysis

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Borrower Risk
{he Five C¶s:
±Cash
±Capability
±Creditworthiness
±Character
±Collateral

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Project Risk
‡ Completion risk

‡ Financial feasibility risk

‡ Collateral risk

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Scope of Borrower Analysis
Assessing risks that the borrower will
complete the project, considering:
‡ Organizational structure
‡ Business experience & qualifications
‡ Financial condition & prospects
‡ General credit history

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‡ Completion guarantee
‡ Operating guarantee
‡ Portfolio:
±Overall stability, profitability, liquidity & vulnerability of
other assets in portfolio
±Diversification of portfolio
±Other direct & contingent liabilities
±Cross-collateralization

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What to Look at: Collateral
‡ Net worth
‡ Schedule of real estate investments
‡ Notes on contingent liabilities
‡ Level of reserves/escrows
‡ Potential refinancings (e.g., balloons)
‡ {rends in property cash flows
‡ Market factors

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‡ Loan payment history
‡ Current debt load
‡ Current performance
‡ Discrepancies

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‡ Legal entity
‡ Experience: projects of similar scope
‡ Prior collaboration of team members
‡ Loan history (incl. defaults)
‡ Property management performance
‡ Not-for-profit issues

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How to look at Capability
‡ Financial statements: debt load
‡ Credit report: payment history
‡ Lender contacts
‡ Property inspections

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‡ Subjective judgments:
±Likelihood to perform/stick with it
±Integrity/live up to commitments
‡ Look at:
±Past development performance
±Physical/management condition
±References on past debt performance & problem
resolution

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Financial Statements
‡ Used to identify <current´ problems
±losing $$ on operations
±not enough cash to meet obligations
‡ Used to identify <potential problems´
±look at trends
‡ Used to identify <source of problems´

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Analyzing Project INVES{MEN{ Risk

Development Budget

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Budgets are...
‡ Estimates
‡ Iterative
‡ Dynamic
‡ Linked

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{he Budgets
Development Budget Operating Budget
‡ Sources ‡ Revenue

‡ Uses ‡ Expenses

‡ NOI
‡ Cash Flow

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Development Cost Analysis
‡ Investors make their own estimates & analyze
variance from developer¶s budgets
‡ All development costs analyzed:
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‡ Development Sources: gap analysis

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Operating Analysis
Key Operating Measures:
‡ Net Operating Income (NOI)
‡ Cash flow (ROI/ROE)
‡ Debt coverage ratio
‡ Break-even ratio

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INVES{MEN{ ANALYSIS Models
‡ {he Payback Model
±Measures the time it will take to recover the project
investment.
±Shorter paybacks are more desirable.
±Emphasizes cash flows, a key factor in business.
±Limitations of payback:
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INVES{MEN{ ANALYSIS Models (cont¶d)
‡ {he Net Present Value (NPV) model
±Uses management¶s minimum desired rate-of-return
(discount rate) to compute the present value of all net
cash inflows.
†   ' (
    
          
† ' ' (
 

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Net Present Value (NPV) and Internal Rate of Return (IRR):
Example Comparing {wo Projects

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General Financing Issues
‡ Equity required
‡ Firmness of other commitments
‡ Inter-creditor issues
‡ Rate/order of disbursements
‡ Overruns
‡ Balloons & other long-term issues
‡ Financing Methods & Cost- Selection

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Project Screening Matrix

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A Portfolio Management System
‡ Selection Criteria
±V
# 
#"' payback, net present value (NPV), internal
rate of return (IRR)
±( )*
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#"' projects of strategic importance to the
firm.
‡ Multi-Weighted Scoring Models
±Use several weighted selection criteria to evaluate
project proposals.

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