Unboxing PMBOK, PMP – Post#8 Understanding the stakeholders of the project

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. 🙂

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Unboxing PMBOK / PMP – Lesson#6 – Project selection methods

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 yearPrincipal at the beginning1,000
Interest for the year  (1000×0.10)100
Principal at the end1,100
Second yearPrincipal at the beginning1,100
Interest for the year (1100*0.10)110
Principal at the end1,210
Third yearPrincipal at the beginning1,210
Interest for the year (1210*0.10)121
Principal at the end1,331

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;

YearCash flow
0Rs (1,000,000)
1200,000
2200,000
3300,000
4300,000
5350,000

The cost of capital, ‘r’ for the firm is 10 percent.

The net present value of the proposal is;

NPV =  (200000/1.10^1)  + (200000/1.10^2)  +  (300000/1.10^3)  +  (300000/1.10^4)  + (350000/1.10^5)  – 1000000 =  – 5,273

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 investment100000
Benefits Year 125000
Benefits Year 240000
Benefits Year 340000
Benefits Year 450000

The benefit cost ratio measures for this project is;

BCR =  ((25000/1.12) + 40000/1.12^2) + (40000/1.12^3)  +  (50000/1/12^4)) / 100000 = 1.145

Decision rules

When BCR > 1 accept the project

When BCR < 1 reject the project

IRR – internal rate of return

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;

Year01234
Cash flow(100,000)30000300004000045000

The IRR is the value of ‘r’, which satisfies the following equation;

100,000 = 30000/(1+r)^1 + 30000/(1+r)^2  + 40000/(1+r)^3 + 45000/(1+r)^4

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.

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Unboxing PMBOK / PMP Post#5 Roles and responsibilities of the Project Manager

Amidst all these managers, who is the real project manager?. When we get into projects, there are no dearth for managers. We have customer’s project manager, consultant’s project manager, sub-contractor’s managers, engineering managers, discipline wise managers (plumbing, electrical, structural, people managers …among these, who is the real project manager?.

For all practical purposes, the moment a team is working under your supervision to deliver a unique product or service within a fixed time, you are the project manager for that specific scope of work.

To be successful in an environment where lot of potential for role overlaps, it is more important to know one’s role very clearly.

Let us take a look at the roles and responsibilities of project managers, as defined by PMBOK version 6.

Mindmap of Project Manager Roles, Responsibilities and skills. Click to zoom in.

Project manager’s role can be compared with that of the conductor of a large orchestra. Project manager may not be an expert in playing the musical instruments, and at the same time he has sufficient knowledge about them and guides the musicians according to plan delivering the desired output.

Relationship with others is another key skills required by project managers. Project managers need to get things done from even those who are not directly reporting to them. As project managers sometimes we will have to seek for things and knowledge even outside the project organization. Hence good relationship with others count a lot.

Ability to communicate effectively with team and with other key stakeholders is another key skill required by project managers. Verbal, written and non-verbal communication skills are very important. 90% of the project managers time go into communication. As project managers either we are planning, meeting, recruiting, negotiating, preparing agenda for meetings, minutes of meetings, recruiting, performance appraisals, problem solving, reviewing, reporting …all these require effective communication skills both written, verbal and non-verbal.

Project managers need to demonstrate the value of professional project management in every action they take within the organization, across various disciplines. They must have the conviction and drive to promote professional project management. For this they must work very closely with Project / Program / Portfolio management offices (PMO). They must constantly update themselves with the industry trends and developments.

Apart from these, project managers should have;

  • Leadership skills (self starters)
  • Strategic and business management knowledge and skills
  • Project , program and portfolio knowledge
  • Technical project management skills

Ultimately project managers are accountable for the success and failure of projects. They are more like the CEO of the project.

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Unboxing PMBOK / PMP Post#4 – Adherence Professional ethics & Social responsibility – A safety net for project stakeholders

Professional ethics and social responsibility of project managers is one of the less discussed topics in the project management circles. Many see it as very idealistic hence feel that it is not practical to practice professional ethics in today’s work environment. Unfortunately, the fact is just the opposite. In today’s highly competitive world, it is much safer and sustainable if one follow the professional ethics in all transactions. Adherence to professional ethics at work place provides the much needed safety net for the project management team against major project risks. If you do not trust my words, please read the following headlines;

Fired city project manager, contractors arrested in Bloomington embezzlement scheme

Wykoff is charged with 24 counts of embezzlement and 1 count of conspiracy for false invoices on sidewalk jobs

U.S. Postal Service Facilities Project Manager Arrested on Corruption Charges

CBI arrests MECL Project manager for bribe…

Texas Rangers arrest recently fired San Marcos construction manager….

That is a huge list….

If you want to get the detailed list just google for ‘Project manager arrested’. So, it is not utopian stuff. If anything goes wrong with the project, as a project manager you are accountable. When the Delhi Metro Rail work was in progress, because of a sub-contractor issue, two people died in an accident. Instead of putting the blame on the sub-contractor, the chief project manager (Mr. Sreedharan) took responsibility and resigned. That was a great demonstration of professionalism and professional ethics. Following professional ethics is a good safety net for project managers and in the longer run, your reputation will increase and bigger opportunities will come your way.

The professional ethics of project managers are classified into four groups comprising of;

  • Responsibility
  • Respect
  • Fairness
  • Honesty

The following mind map depicts the professional ethics of project managers. Click on the diagram to zoom in.

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Unboxing PMBOK / PMP Post#3 – The ten knowledge areas, five process groups and the forty nine processes of PMBOK version 6

The Project Management Body Of Knowledge Version 6 comprises of 49 processes grouped into 10 knowledge areas and 5 process groups.

The 10 Knowledge Areas

  1. Project Integration Management
  2. Scope management
  3. Schedule management
  4. Cost management
  5. Quality management
  6. Resource management
  7. Communications management
  8. Risk management
  9. Procurement management
  10. Stakeholder management

The 5 Process Groups

The five process groups comprises of;

  1. Project Initiation
  2. Planning
  3. Execution
  4. Monitoring & Controlling
  5. Closing

All projects gets formally initiated by the project’s sponsor (who funds the project) or the senior management. During the initiation phase, a project manager is appointed. The project manager drives the project into the subsequent phases of planning, execution, monitoring & controlling and closing.

In real life, these phases are not purely sequential. Initiation and planning happens sequentially. Execution can start even before completing planning fully. Monitoring&Controlling happens from the beginning of the project till the end of the project.

As discussed before, PMBOK Version 6 comprises of 49 processes and each one of these processes are linked to one knowledge area and one process group. For example, ‘Develop project charter’ process is linked to ‘Project Integration Management’ knowledge area and ‘Initiation’ process group. Similarly the process ‘Identify stakeholders’ is liked to ‘Stakeholder management’ knowledge area and the ‘Initiation’ process group.

Every process is made up of a set of inputs / tools&techniques / outputs which is also called as ITTO in the project management circles.

Let us take a look at the processes, process group wise;

Initiation

  1. Develop Project Charter
  2. Identify Stakeholders

Planning

  1. Develop project management plan
  2. Plan scope management
  3. Collect requirements
  4. Define scope
  5. Create Work Breakdown Structure (WBS)
  6. Plan schedule management
  7. Define activities
  8. Sequence activities
  9. Estimate activity duration
  10. Develop schedule
  11. Plan cost management
  12. Estimate costs
  13. Determine budget
  14. Plan quality management
  15. Plan resource management
  16. Estimate activity resources
  17. Plan communications management
  18. Plan risk management
  19. Identify risks
  20. Perform qualitative risk analysis
  21. Perform quantitative risk analysis
  22. Plan risk responses
  23. Plan procurement management
  24. Plan stakeholder engagement

Execution

  1. Direct and manage project work
  2. Manage project knowledge
  3. Manage quality
  4. Acquire resources
  5. Develop team
  6. Manage team
  7. Manage communications
  8. Implement risk responses
  9. Conduct procurements
  10. Manage stakeholder engagement

Monitoring & Controlling

  1. Monitor and control project work
  2. Perform integrated change control
  3. Validate scope
  4. Control scope
  5. Control schedule
  6. Control costs
  7. Control quality
  8. Control resources
  9. Monitor communications
  10. Monitor risks
  11. Control procurements
  12. Monitor stakeholder engagement

Closing

  1. Close project or phase

Trust this post would have given you a fair idea about the 10 knowledge areas, 5 process groups, 49 processes. We also discussed that each process is linked to one knowledge area and one process group.

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