The Wrench SmartProject team supports me to write these blog posts to evangelize professional project management. Their flagship product Wrench SmartProject helps organizations to monitor and control projects real time. Click on the Wrench SmartProject logo below to know more about SmartProject.
Scrum is a light weight framework to get things done. That ‘get things done’ can be a personal project or a very complex product development. The scrum framework was defined by Ken Schwaber and Jeff Sutherland and consists of a set of ceremonies like;
Sprint planning meeting
Sprinting
Daily stand up meetings (daily scrums)
Sprint reviews
Sprint retrospectives
The scrum teams have only three roles;
Product owner
Scrum master
Development team
The team performs these ceremonies. The Scrum teams are guided by the scrum values of;
Courage
Focus
Commitment
Respect
Openness
Scrum is not driven by rules. It is driven by these values. Like every other value driven system, scrum is easy to understand and at the same time it is not that easy to practice unless the entire team vale these values.
Anybody who is affected positively or negatively, by doing a project or by not doing a project, or by delaying a project is a stakeholder of the project. The common stakeholders of the project are;
Sponsor / Sponsors – Those who are funding the project
Project managers
Consultants
Engineering heads
Team members
Customer
Suppliers
Trade unions
Government agencies
Auditors etc.
During the project initiation, we identify the key stakeholders and prepare a Stakeholders register which is maintained throughout the project.
Classification of Stakeholders
High power / high interest stakeholders
They have very high degree of power and they have lot of interest in the project. Since they are extremely powerful, and have lot of interest in the project they can be the real supporters of the project, if their expectations are met or exceeded throughout the project. Sponsors of the project is a good example for this category of stakeholders.
High power / low interest stakeholders
They have lot of power and at the same time may not have lot of interest in your project. Still their expectations must be met or exceeded. CEO of your organization can be a good example for this category. She is very powerful, and at the same time do not have lot of interest in your project as it is just one of the many projects running in the organization.
Low power / high interest group
They are low power and at the same time have lot of interest in the project. End users of the software application you are building is a good example. They are the opinion leaders, hence their expectations also must be met or exceeded.
Low power / Low interest group
They neither have much interest in the project nor have any power to influence the project outcomes. Just ignore them.
External stakeholders
They are external to the project organization. Competitors, suppliers, Government agencies etc are good examples.
Internal stakeholders
They are internal to the project organization. Project manager, team, engineering managers etc are good examples for internal stakeholders.
Direct and Indirect stakeholders
When I was preparing for my PMP certification, I was a direct stakeholder and my wife and daughter were indirect stakeholders. 🙂
The Wrench SmartProject team supports me to write these blog posts to evangelize professional project management. Their flagship product Wrench SmartProject helps organizations to monitor and control projects real time. Click on the Wrench SmartProject logo below to know more about SmartProject.
Organic or simple – Ad-hoc in nature, Common in small organizations / teams. Project manager’s authority is little or none.
Functional – Organized as different disciplines like engineering, construction, quality assurance, procurement etc. Project manager’s authority is little or none. Functional managers have lot of authority.
Multi-divisional – Can have multiple divisions and under each division functional organizations exist. For example Toyota Japan, Toyota India etc.
Matrix organization – Cross functional teams where team members report to more than one boss. For example, in most of the product companies the architects report to the project manager for project related matters and they also report to the Chief Technology Officer (CTO) for technology related matters. In general, team members have more than one boss to report to. Based on the different levels of power, matrix organizations can be sub-divided to;
Strong matrix – Project manager have more power than the functional manager.
Balanced matrix – Both the project manager and the functional manager share equal amount of power.
Weak matrix – The functional manager has more power than the project manager.
Project oriented – Organization is arranged project wise. Project managers have maximum authority.
Virtual organization – Distributed teams. Team members operate from different locations. Project managers have low to moderate degree of power.
Hybrid – Mix of other types. One division may have functional structure where as another may have project oriented structure.
PMO – Portfolio / Program / Project management office. Mix of other types. Project managers have high to almost total power. PMOs can be further classified into;
Supportive PMO – Focus is on Tools, Templates, Process definition, training for project management.
Via my network I received the first version of the Scream Guide; a comprehensive guide (22 pages) to organizational screaming, written by Michael Küsters. Scream is a framework built as an imitation of Scrum, giving unwitting observers the appearance that the organization might be using Scrum. Scream is a framework for cementing the status quo, preserving […]
Contrary to what you might be inclined to believe about this photograph, it was taken in 1999, when Jeff Bezos was already worth around 9 billion dollars. Yet he worked from that office, drove around in a Honda, and had a terrible sense of fashion. Today’s richest man was working from headquarters located on the […]
How do we select the right projects for execution? . Projects must have a solid business case to support it. A set of ratios comes in handy while picking up the right projects for execution. They are;
Net present value (NPV) Payback period Benefit cost ratio (BCR) Internal rate of return (IRR) The time value for money
The time value for money
Money has a time value. A rupee today is more valuable than a rupee year later. Why? There are several reasons. Capital can be employed productively to generate positive returns. In an inflationary period a rupee today represents a greater real purchasing power than a rupee a year later
Time lines and notations
When cash flows occur at different points in time, it is easier to deal with them using a time line. A time line shows the timing and the amount of each cash flow in a cash flow stream. Cash flows can be positive or negative. A positive cash flow is called as cash inflow and a negative cash flow is called a s cash outflow.
Future value
Suppose you invest Rs.1000 for three years in a savings account that pays 10 percent interest / year. If you let your interest income be reinvested, your investment will grow as follows;
First year
Principal at the beginning
1,000
Interest for the year (1000×0.10)
100
Principal at the end
1,100
Second year
Principal at the beginning
1,100
Interest for the year (1100*0.10)
110
Principal at the end
1,210
Third year
Principal at the beginning
1,210
Interest for the year (1210*0.10)
121
Principal at the end
1,331
The process of investing money as well as re-investing the interest earned thereon is called compounding. The future value, or compounded value of an investment after ‘n’ years, when the interest rate is ‘r’ percent is;
FV n = PV (1+r) ˆ n
In this equation, (1+r) ^ n is called future value factor
If we apply this formula;
FV n = 1000 (1+. 1)^3 = 1000 x 1.1 x 1.1 x 1.1 = 1331
Net present value
The net present value (NPV) of a project is the sum of the present values of all the cash flows , positive as well as negative , that are expected to occur over the life of the project. To illustrate the calculation of net present value, consider a project, which has the following cash flow stream;
Year
Cash flow
0
Rs (1,000,000)
1
200,000
2
200,000
3
300,000
4
300,000
5
350,000
The cost of capital, ‘r’ for the firm is 10 percent.
The net present value represents the net benefit over and above the compensation for time and risk. Hence the decision rule associated with the net present value criterion is, accept the project if the net present value of the project is positive and reject the project if the net present value is negative.
The benefit cost ratio
Benefit cost ratio BCR = PVB / I where
PVB = present value of benefits and I = initial investment
To illustrate the calculation of these measures, let us consider a project, which is being evaluated by a firm that has a cost of capital of 12 percent.
Initial investment
100000
Benefits Year 1
25000
Benefits Year 2
40000
Benefits Year 3
40000
Benefits Year 4
50000
The benefit cost ratio measures for this project is;
The internal rate of return (IRR) of a project is the discount rate, which makes its NPV equal to zero. To illustrate the calculation of IRR, consider the cash flows of a project being considered;
Year
0
1
2
3
4
Cash flow
(100,000)
30000
30000
40000
45000
The IRR is the value of ‘r’, which satisfies the following equation;
The calculation ‘r’ involves a process of trial and error. We try different values of ‘r’ till we find that the right hand side of the above equation is equal to 100,000. In this case, the value lies between 15 and 16 percent.
The decision rule for IRR is as follows;
Accept, if the IRR is greater than the cost of capital
Reject, if the IRR is less than the cost of capital
Payback period
The payback period is the length of time required to recover the initial cash outlay on the project. For example, if a project involves a cash outlay of RS. 600000 and generates cash inflows of Rs. 100000, 150000, 150000 and 200000 in the first, second, third and fourth years respectively, its pay back period is 4 years because the sum of cash flows during the four years is equal to the initial outlay. According to the payback criterion, the shorter the payback period, the more desirable the project.
Opportunity cost
Opportunity cost (opportunity lost) is the NPV of the next best project, you are not doing, because you have decided to invest in a project.
Let us assume that you have 100,000 rupees and you are investing this money in project ‘A’, whose NPV=200,000 and because of this you are unable to do project ‘B’, whose NPV=150,000 or project ‘C’, whose NPV = 120,000, then the opportunity cost is 150,000, which is the NPV of project ‘B’, which is the next best option after ‘A’.
In personal life, these concepts of NPV, payback period, BCR, IRR and opportunity cost are really helpful, to protect yourself from unwanted expenses like buying a new flat, car or even mobile phone. Before committing to buy, just think about these ratios, and most probably you will restrain from your impulse to buy unwanted stuff.
The project management body of knowledge says that ‘Projects fail at the beginning and not at the end’. A project which does not have a good business case is a bubble, which can burst at any time. So, before starting a project, please ensure that the project has a solid business case, and if the business case is not clear, please document it as a risk.
The paradigm shift within PMBOK Version 6
So far, if a project got over on time, within budget and met it’s scope, then it was considered as successful. As per the PMBOK Version 6 on wards, projects are considered as successful only when they got completed on time, within budget, met their scope and satisfied the purpose for which it was initiated which includes the payback period. That makes the understanding of the business case of the project from day 1 of the project a critical success factor for the project manager.
