C7: Project Initiation

24 de março de 2021 14:41

• The project initiation phase is the first phase within the project management life cycle, as it
involves starting up a new project.
• Within the initiation phase, the business problem or opportunity is identified, a solution is
defined, a project is formed, and a project team is appointed to build and deliver the solution
to the customer.
• A business case is created to define the problem or opportunity in detail and identify a
preferred solution for implementation.
• The business case includes: •
○ detailed description of the problem or opportunity with headings such as Introduction,
Business Objectives, Problem/Opportunity Statement, Assumptions, and Constraints;
○ A list of the alternative solutions available;
○ An analysis of the business benefits, costs, risks, and issues;
○ A description of the preferred solution;
○ Main project requirements;
○ A summarized plan for implementation that includes a schedule and financial analysis.
• The project sponsor then approves the business case, and the required funding is allocated to
proceed with a feasibility study.
• It is up to the project sponsor to determine if the project is worth undertaking and whether
the project will be profitable to the organization.
• The completion and approval of the feasibility study triggers the beginning of the planning
phase.
• The feasibility study may also show that the project is not worth pursuing and the project is
terminated; thus the next phase never begins.
• All projects are created for a reason. Someone identifies a need or an opportunity and devises
a project to address that need.
• How well the project ultimately addresses that need defines the project’s success or failure.
• The success of your project depends on the clarity and accuracy of your business case and
whether people believe they can achieve it.
• Whenever you consider past experience, your business case is more realistic; and whenever
you involve other people in the business case’s development, you encourage their
commitment to achieving it.
• Often the pressure to get results encourages people to go right into identifying possible
solutions without fully understanding the need or what the project is trying to accomplish.
• This strategy can create a lot of immediate activity, but it also creates significant chances for
waste and mistakes if the wrong need is addressed.
• One of the best ways to gain approval for a project is to clearly identify the project’s objectives
and describe the need or opportunity for which the project will provide a solution.
• For most of us, being misunderstood is a common occurrence, something that happens on a
daily basis.
• Projects are filled with misunderstandings between customers and project staff. What the
customer ordered (or more accurately what they think they ordered) is often not what they
get. The cliché is “I know that’s what I said, but it’s not what I meant.”
• Figure 7.1 Project Management by Andreas Cappell demonstrates the importance of
establishing clear objectives.
○ The need for establishing clear project objectives cannot be overstated.
○ An objective or goal lacks clarity if, when shown to five people, it is interpreted in
multiple ways.
○ Ideally, if an objective is clear, you can show it to five people who, after reviewing it,
hold a single view about its meaning.
○ The best way to make an objective clear is to state it in such a way that it can be verified.
Building in ways to measure achievement can do this. It is important to provide
quantifiable definitions to qualitative terms.

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Figure 7.1 Project Management by Andreas Cappell

• To ensure the project’s objectives are achievable and realistic, they must be determined jointly
by managers and those who perform the work.
• Realism is introduced because the people who will do the work have a good sense of what it
takes to accomplish a particular task.
• In addition, this process assures some level of commitment on all sides: management
expresses its commitment to support the work effort and workers demonstrate their
willingness to do the work.

7.1 Comparing Options Using a Weighted Decision Matrix

• Sometimes we have multiple options to choose from when determining requirements and
deciding which project to work on.
• To select the best option, we can use tools such as a weighted decision matrix.
○ A basic decision matrix consists of establishing a set of criteria for options that are
scored and summed to gain a total score that can then be ranked.
○ Importantly, it is not weighted to allow a quick selection process.
○ A weighted decision matrix operates in the same way as the basic decision matrix but
introduces the concept of weighting the criteria in order of importance.
○ The resultant scores better reflect the importance to the decision maker of the criteria
involved. The more important a criterion, the higher the weighting it should be given.
○ Each of the potential options is scored and then multiplied by the weighting given to
each of the criteria to produce a result.
○ The advantage of the weighted decision matrix is that subjective opinions about one
alternative versus another can be made more objective. Another advantage of this
method is that sensitivity studies can be performed. An example of this might be to see
how much your opinion would have to change in order for a lower-ranked alternative to
outrank a competing alternative.
○ A weighted decision matrix therefore allows decision makers to structure and solve their
problem by:
1) Specifying and prioritizing their needs with a list a criteria;
2) Evaluating, rating, and comparing the different solutions;

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 2) Evaluating, rating, and comparing the different solutions;
3) Selecting the best matching solution.
• A decision matrix is basically an array presenting on one axis a list of alternatives, also called
options or solutions, that are evaluated regarding, on the other axis, a list of criteria, which are
weighted depending on their respective importance in the final decision to be taken.

7.2 Weighted Decision Matrix Sample

The example in Figure 7.4 Weighted Decision Matrix for Game Delivery Project shows a weighted
decision matrix that compared three options for a web development project (SJS Enterprises).
• This method is especially useful when choosing purchase alternatives and comparing them
against specific desirable system requirements.

7.3 Financial Considerations

In many new project endeavors, we need to find out if our project is financially feasible. We do that
by using net present value (NPV), rate of return (ROI), and payback analysis.

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7.4 NPV
• A dollar earned today is worth more than a dollar earned one or more years from now.
• The NPV of a time series of cash flows, both incoming and outgoing, is defined as the sum of
the present values (PVs) of the individual cash flows of the same entity.
• In the case when all future cash flows are incoming and the only outflow of cash is the
purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which
is its own PV).
• NPV is a standard method for using the time value of money to appraise long-term projects.
• Used for capital budgeting and widely used throughout economics, finance, and accounting, it
measures the excess or shortfall of cash flows, in present value terms, once financing charges
are met.
• NPV can be described as the “difference amount” between the sums of discounted cash
inflows and cash outflows.
○ It compares the present value of money today to the present value of money in the
future, taking inflation and returns into account.
○ The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or
discount curve and outputs a price.
○ Each cash inflow/outflow is discounted back to its present value (PV). Then they are
summed. Therefore NPV is the sum of all terms.

where
tis the time of the cash flow
iis the discount rate (the rate of return that could be earned on an investment in the financial
markets with similar risk; the opportunity cost of capital)
Rtis the net cash flow (i.e., cash inflow – cash outflow, at time t).

• NPV is an indicator of how much value an investment or project adds to the firm.
• With a particular project, if NPV is a positive value, the project is in the status of positive cash
inflow in the time t. If NPV is a negative value, the project is in the status of discounted cash

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 inflow in the time t. If NPV is a negative value, the project is in the status of discounted cash
outflow in the time t.
• Sometimes risky projects with a positive NPV could be accepted. This does not necessarily
mean that they should be undertaken since NPV at the cost of capital may not account for
opportunity cost (i.e., comparison with other available investments).
• In financial theory, if there is a choice between two mutually exclusive alternatives, the one
yielding the higher NPV should be selected.

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7.5. NPV Example

• The following example is calculating the NPV of a project at a discount rate of 12%.
• The project takes five years to complete with given benefits and costs for each year.
○ In Year 0, there is no benefit to the organization, just an initial cost of $75,000 with no
discount rate.
○ In Year 1, the discount rate is 89%. This means that at 12% assumed interest, the time
value of money says that the $1 today is worth $0.89 in one year, $0.80 in two years,
etc.
• By calculating the NPV for the benefits and the costs, you subtract the NPV of all costs from
the NPV of all benefits. The final result is a positive value of $105,175.

7.6. ROI
• Return on investment (ROI) is a performance measure used to evaluate the efficiency of an
investment or to compare the efficiency of a number of different investments.
• It is one way of considering profits in relation to capital invested.
• This is calculated by subtracting the project’s costs from the benefits and then dividing by the
costs.
○ For example, if you invest $100 and your investment is worth $110 next year, the ROI is
(110-100)/100 = 0.1 or a 10% return.
○ In our example: (306,425-201,175)/ 306,425 = .52 = 52% return. That’s considered a nice
return on investment.

7.7. Payback Period

• Payback analysis is important in determining the amount of time it will take for a project to

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• Payback analysis is important in determining the amount of time it will take for a project to
recoup its investments.
• This is the point at which the benefits start to outweigh the costs.
• The best way to see that is by charting the cumulative benefits and costs.
• As you can see in the example in Figure 7.7 Payback Analysis Chart. , the cumulative benefits
outweigh the cumulative costs in the second year.

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7.8. Project Charter

• A project charter, project definition, or project statement is a statement of the scope,
objectives, and participants in a project.
• It provides a preliminary delineation of roles and responsibilities, outlines the project
objectives, identifies the main stakeholders, and defines the authority of the project manager.
• It serves as a reference of authority for the future of the project.

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 7.8.1. Purpose of the project charter
• The purpose of a project charter is to:
○ Provide an understanding of the project, the reason it is being conducted, and its
justification
○ Establish early on in the project the general scope
○ Establish the project manager and his or her authority level.
• A note of who will review and approve the project charter must be included.

7.8.2. Simple example of Project charter

7.8.2.1. Identification Section
• Identification Section List the project name, the date of the current version of the project
charter, the sponsor’s name and authority, and the project manager’s name.
• Example:
○ Project Name: Rice University Computer Store Creation
○ Project Sponsor: Jane Ungam, Facilities Manager
○ Date: Jan 12, 2010
○ Revision: 1 Project Manager: Fred Rubens

7.8.2.2. Overview of the project

• Provide a simple but precise statement of the project.
• Example: Rice University is planning to create a store to sell computer supplies.

7.8.2.3. Objective
• State the objectives of the project clearly and ensure they contain a measure of how to assess
whether they have been achieved.
• The statement should be realistic and should follow the SMART protocol:
○ Specific (get into the details)
○ Measurable (use quantitative language so that you know when you are finished)
○ Acceptable (to stakeholders)
○ Realistic (given project constraints)
○ Time based (deadlines, not durations)
• Example:
○ The objective of this project is to implement a campus store that is ready to sell
computer supplies such as memory sticks, mouse pads, and cables, when class starts in
August 2010, with enough inventory to last through the first two weeks of classes.

7.8.2.4. Scope
• Specify the scope of the project by identifying the domain or range of requirements.
• Example:
○ The scope of the Rice’s school supplies store project includes the activities listed below:
▪ Determine what supplies will be sold in the store.
▪ Establish competitive prices for the computer supplies.
▪ Source and secure supply vendors.
▪ Establish marketing, procurement, operations, and any other necessary
departments, schools, centers, and institutes.
• It is equally important to include in the scope what is not included in the project.
• Example:
○ The scope of the project does not include:
▪ Development of any other school store departments
▪ Store design or construction

7.8.2.5. Major millestones

• List all major milestones needed to ensure project completion successfully.
• Example:
○ All vendors selected
○ Contracts or orders completed with all vendors
Supplies delivered to the store

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 ○ Supplies delivered to the store
○ Pricing determined

7.8.2.6. Major deliverables

List and describe the major deliverables that will result from the project. Example • Supplies
procured • Operations, procurement, marketing, and other teams established • Store supplies
stocked and displayed • Store staffing completed, including work schedules • Store operations
policies, including hours of operation, established

7.8.2.7. Assumptions
• Outline the assumptions made in creating the project.
• An assumption is a fact you are unsure of but can either confirm at a later time or are simply
stating so that the project can proceed as if the statement were true.
• Example
○ Only computer supplies will be sold in the store.
○ Customers will be the Rice University student body and faculty.
○ Rice University students will manage the project and be responsible for ongoing
operations.
○ A store sponsor from the university faculty or staff will be assigned to mentor students
and provide oversight.
○ Store hours of operation will be approved by the Rice University students or store
sponsor.
○ Supplier deliveries will be arranged or the store sponsor will pick them up with students.
○ Students will be empowered to contact vendors for order placement and inquiries via
telephone.

7.8.2.8. Constraints
• Define any and all constraints on the project or those working on the project.
• This is an important part of the project charter.
• A constraint is anything that limits the range of solutions or approaches.
• Example:
○ Student availability to meet for project planning is limited to school hours.
○ Software is not available for project planning and control.

7.8.2.9. Business Need or Opportunity (Benefits)

• Provide a concise statement of the business need or opportunity that led to the creation of the
project.
○ Why was it created? What are the benefits? How does the project contribute to
organizational objectives?
• Example: The goal of this project is to provide income for the Rice Student Center while
supplying necessary items to students and faculty at competitive prices. The school store will
be a convenience to students since necessary supplies will be available on campus. This will
help students learn to manage their personal supplies.

7.8.2.10. Preliminary Cost for the Project

• Provide a statement indicating how the cost of the project will be defined and controlled.
• Example: The procurement team will assemble a proposal based on expected costs for review
by the Dean of Undergraduate Studies.

7.8.2.11 Project Risks

• A risk is anything uncertain that may occur that will reduce or decrease the chances of project
success.
• Example:
i. There is a state election coming and the new government may change the taxation
rules for private university retail outlets.
ii. The cloud is changing student demand for media such as flash drives in somewhat
unpredictable ways. If this happens faster than we forecast, we may be building a
store that students don’t need.

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 store that students don’t need.
iii. Deliveries of store shelves, etc. will be delayed if a major hurricane occurs.

7.8.2.12 Project Charter Acceptance

Provide the names, titles, and signature lines of the individuals who will sign off on the project
charter.

7.8.2.13 Project Stakeholders

Provide the key stakeholders and team members by function, name , and role.

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