duction The Case Study for PROJ587 will place the student in the role of a senior manager in charge of one of your company's Strategic Business Units (SBU). Your first task in this new position is to develop a project portfolio management process and then use this process to select projects for your SBUs portfolio. The Case Study will involve the application of the tools and techniques of multiproject/program management and will deal with the analysis and establishment of project management systems based on the structure of the project. The expected outputs from this Case Study will be in the form of a two part written report due week five. Background The senior management of your company has already made the strategic decisions to allocate annual funding to each of the Strategic Business Units (SBU) within the company. You have been hired to manage one of the companies SBUs. Your new company is a mid cap company with revenues of approximately $350 million dollars a year. This company, like many others, is struggling in today's economy. It realizes in order to survive it needs to both expand and control costs at the same time. You are new to this industry. This company's vision is to become the \"go to\" support or the \"provider of choice\" for the cruise ship industry throughout the world. This company currently is in the travel and hotel support industry. As such, you supply support services to the travel and hotel industry such as linen services to cruise ships and major hotel chains in the Southeastern United States. Most of your new company's revenues are derived for the cruise ship industry versus the hotel industry. This company is home based in Tampa, Florida, as most of your business is in that geographic area. You are in charge of the Operations SBU and responsible for the management of a product portfolio in this strategic business unit. The Operations SBU is the SBU that provides all the company's services to its clients. There are a number of projects already in progress, but there has not been a good portfolio management process in place. The parent company has set the following strategic goals for the entire company: o Expansion goals are to grow the company 10% per year, specifically to include the following: Expand into new markets in Alaska and Europe o Expand services provided to current customers o Increase revenues by 10% o Increase customer satisfaction by 15% Cost Control goals include the following o Reduce operating costs by 10% o Reduce overhead and warehousing costs by 5% Assignment Assignment: Due Week 5 This is a two part assignment. Part 1 First, develop project selection criteria and a high level process for applying the criteria and managing the portfolio. The criteria should be consistent with the business environment for the industry, consistent with your company's overall mission/strategies, and consistent with the mission and strategies of your strategic business unit. You are proposing a process, not individual projects. The deliverable for Part 1 is a written proposal for the project selection criteria and a high level description of a proposed portfolio management process. You may also be expected to make an informal presentation of the report in class. The proposal should be in the form of a memorandum to your Vice President (your instructor) outlining your proposal. The memorandum should be no more than 5 pages, including any figures and tables. It should be double-spaced, 10 or 12 point font with one-inch margins. This is a summary for an executive, so be concise, to the point, and leave out the fluff. If you don't need 5 pages to document your proposal fully, I am sure that your Vice President will be happy with less as long as it is complete. Using appropriate grammar, spelling, punctuation, and sentence structure will be part of your grade. The actual proposal should include the following: 1. 2. A description of the proposed portfolio process. You are explaining it to the executives. The reasons it was selected (tie to strategies as appropriate.) 3. A description of the proposed selection criteria. How will the process be applied in your SBU? 4. The method for applying the selection criteria, and the justification for both. How are you going to score the projects and evaluate the scores? Hints for a Successful Part 1: This is not a complete project proposal or even a complete status report. You are making a specific proposal to management of a \"Project Portfolio Evaluation and Selection Process\". All reports and memos to executives should include an executive summary at the beginning. This one is no exception. The discussion of the organization should be limited to how the SBU organization supports projects and the PPM process. It is not necessary to discuss the total company. Pay attention to the specifics requested in the deliverables. Do NOT make your memo a list of questions and answers. That is not the way a business memo is written. It is easy to select a process that is presented in a reference but you must propose one that works for your SBU. When you think you are finished put yourself in the role of someone who was not working on the solution and read your presentation. You can assume you know the basics of PPM. Does your presentation provide a good description of the process and how it will be applied? Are there obvious questions that it raises that are not answered? This is not a classroom assignment, it is a business memo. Also it is not a research report and you are not trying to demonstrate your academic expertise and how well you are read. Part 2 In Part 1 of the project, the new Vice President (your instructor) of your Strategic Business Unit had asked you to create a portfolio management process and project selection criteria for use by the SBU. It is now time to apply this process in selecting this year's projects for your portfolio. In the annual budget cycle, your SBU was allocated $24 million dollars of funding uniformly spread over the next year for your portfolio. This means you have $6 million dollars to spend any given quarter. You may select any of the below projects to be included in your portfolio, but you cannot spend more than the allotted dollars allocated to your SBU. Your task is to select those projects, using your selection criteria, that most benefit the overall company without exceeding you quarterly budget of $6 million dollars. You must also lay out a plan for what quarter your selected projects will start in. Below are your possible projects: Project Call Center Currently you have no call center to address customer complaints or accept orders. Customers must use the internet to fill out an online form to address their complaints or service needs. These forms are processed by employees in your department. Currently the turnaround time on any given form is between four to eight hours. This creates a number of other customer complaints. Project Call Center is designed to reduce this turnaround time by 75% by creating and staffing a call center in Tampa. Building acquisition, building renovations, building fit out, IT system upgrades, and hiring and training of staff are estimated to cost $8.5 million dollars. This $8.5 million dollars can be paid evenly in any two quarters in the next year. In addition, seven new employees will need to be hired at $40,000 burdened labor costs per year to staff the call center. Management of this project could easily be done with the current in-house staff. Most of the work of this project would be outsourced and will have minimal impact on day-tooperations. Project Ordering Upgrade Currently ordering processing is done online. The software and hardware used in this system are about ten years old. As such, order processing is a long, arduous process for the fifteen person staff. Upgrading this process to a state of the art system would cost approximately $2.5 million dollars, and it is a onetime pay in full internal charge to your SBU. It would also result in a reduction in the fifteen person staff by 7 individuals and reduce order processing time by 50%. Each individual in this department is paid $35,000 burdened labor costs a year. Most of the work of this project could be done internally with existing staff. One weekend of operations will be impacted by the project in its entirety. Project Rocky The Alaskan cruise ship industry is booming. For some reason, people like to look at icebergs. Unfortunately, our company is servicing no cruise ships in Alaska. Project Rocky is to expand into the Alaskan market. This project will require the acquisition of property in Alaska, renovation of that property, and staffing of the facility. This project is seen as a major money maker for the company and has a NPV of $19 million dollars over five years. Its costs would be $13 million dollars to initially set up the project and $400,000 a year to operate the facility. This initial cost can be spread evenly over each of four quarters of the entire year. These initial costs should be recovered within the first two or three years of operation. Most of the work of this project would be outsourced and management of the project would likely be difficult. Project Europa The Mediterranean cruise ship industry is booming. Unfortunately, our company is servicing no cruise ships in the entire European area. Project Europa is to expand into the Mediterranean market. This project will require the acquisition of property in Italy, renovation of that property, and staffing of the facility. The current governmental overspending and austerity issues may impact this project. However, this project is seen as a major money maker for the company and has a NPV of $15 million dollars over seven years. Its costs would be $11 million dollars to initially set up the project and $500,000 a year to operate the facility. This initial cost can be spread evenly over each of the four quarters of the entire year. These initial costs should be recovered within the first three years of operation. Most of the work of this project would be outsourced and management of the project would be extremely difficult. Project Robot Our key distribution center is in St. Petersburg, Florida. It has a staff of 100 individuals to process the linens for the Florida cruise industry. Automation would allow us to reduce staff by 35 individuals. The average burdened labor costs of each of these individuals is $45,000 dollars a year. The cost of such automation would be in the neighborhood of $17 million dollars. This initial cost can be spread evenly over the entire year. This project would also likely disrupt the facility for about 3 months while the work is being done. Upon completion, the newly remodeled facility will be 1/3 smaller allowing our need for warehousing space to be reduced by 1/3. This would allow us to sublet this space for an estimated $2 million dollars a year in revenue. Most of the work of this project would be outsourced. Project Tableware In order to become the provider of choice for the cruise industry, our company needs to expand to more than just linens. A suggestion was made to expand into supplying tableware to the cruise industry, as much tableware is lost every cruise to breakage. Currently this need is supplied by a number of smaller companies that we could easily compete with. This project would involve creating a Just In Time process to receive and supply the cruise ships. It would also involve the need for a minimal warehouse facility. This project is likely to cost $5.5 million dollars and have a NPV of $1 million dollars over five years. All initial costs can be spread over any two quarters of the upcoming year. It would likely take four years to recover the initial costs of this project. It would further cost approximately $300,000 dollars a year to operate this facility. All of the work of this project would be outsourced. Your Assignment Your task is to use your portfolio process to determine which of the above projects best fit into your portfolio and create a time based plan by quarters as to when each project selected should begin and be paid for. Once this is accomplished, you need to write an internal memo to your Vice President denoting the projects selected, the time based plan in quarters, and why you chose as you did. The document should be double-spaced, 10 or 12 point font with one inch margins. This is a Recommendation Memo for an executive, so be concise and to the point. If you don't need more than 7 pages to document your plan adequately, I am sure that your manager will be happy with it as long as it is complete. The use of appropriate grammar, spelling, punctuation, and sentence structure is part of your grade Running Head: PROJECT MANAGEMENT 1 Project management Raj Patel Course name Institution Affiliation Instructor name Date Project management 2 MEMORANDUM TO: Vice President FROM: senior manager DATE: November SUBJECT: Portfolio management process proposal Executive summary Portfolio management is the coming up with the best strategy for managing some selected projects in an organization. The plan should make sure that the projects augment each other and are in line with company's objectives, goals, mission, and vision. An effective portfolio management is characterized with minimum bottlenecks, within the specifications set at the planning stage and has a high rate of success as regards to meeting the projects'' objectives. The entire portfolio management will require the cooperation of the executive, project management, and operations. The executive is the arm of the organization responsible for planning and administration duties. The project management is simply the office tasked with the selection and administration of the organization's projects whereas the programs are the specific activities that are directed towards managing a project portfolio (Levine, 2007). Portfolio management process Project portfolio management process is a decision-making process. It may involve analyzing and reviewing active projects as regards to their performance. New projects will also Project management 3 have to be evaluated and prioritized, and available resources are distributed by the level of need of each project. The process will have four primary phases that are sequential in nature. The phases are preparation, planning, execution, and harvesting. Portfolio management has real life cycles because the portfolios have to be reviewed and the four phase processes need to repeat over sometimes. This means that each stage must be done to perfection before proceeding to the next level. The results of the projects in the portfolio are simply enablers that pave the way to benefits to be received in future at the harvesting phase (Levine, 2007). Process overview Phase Step Description Preparation 1 Setup and categorization 2 Identify needs Planning 3 Evaluate alternatives 4 Choose the best alternative 5 Prioritize work/projects 6 Optimize and balance the portfolio Execution 7 Assign responsibility to the various projects 8 Plan and activate the projects and programs Harvesting 9 Report on performance of the portfolio 10 Review and improve the project portfolio Reasons for choosing the process The process followed the corporate strategy which will enable the management to identify the projects that are worth the organization's time, investment performance and cost. The method used cooperative efforts in a bid to come up with the right project mix and analyzed both the external possibilities and internal capabilities. The process enabled for the decision-making process to leverage on available strategic resources and factored in the benefits of the individual projects and the portfolio a unit. Project management 4 The process ensures that the projects were chosen and managed aligned with the goals, objectives, vision, and mission of the company. The allocation of the resources to the selected projects and project portfolio evidently reflect the corporate strategy. The portfolio management will be directed towards maximizing value to the organization given that firms have limited resources at their disposal. The process ensures that the limited resources will be used efficiently to satisfy the many wants to maximize value. The ten step process borrows from financial management concept of balancing of investment decisions. The organization will have to balance returns and risks, short term and long term benefits, factor in competitive impact and duration of the entire projects. The corporate strategy enables a business to transform the visions and missions into reality by successfully managing the project portfolios. Selection criteria The selection criteria factored in some issues such as realism, capability, flexibility, ease of use, cost, and ease of communication. Realism talks about the real situation of the company and the status of the managers. There must be a standard factoring system in which the corporation can easily compare different new projects. The decision takes into consideration the company resources with regards to their capability to achieve the desired project objective. Risk will also be a deciding factor regarding their magnitude, impact and various ways of mitigating them (Archer &Ghasemzadeh, 1999). The selection process identified capability as a fundamental selection criterion. The process can easily deal with multiple and different time periods, simulate both external and internal situations that may affect the projects such as changes in the interest rates and optimize decisions. The optimization aspect will make comparisons easier and consider potential risks and any constraints that may affect the projects. Project management 5 Flexibility will evaluate the ability of the selection process to provide accurate and relevant results associated with the conditions that the organization might experience. The process has to be self-adjusting to any external forces and can be modified to fit the prevailing circumstances. The process will be able to be proactive to forces such as technological advances, economic and legislative factors (Archer & Ghasemzadeh, 1999). The selected process is easy to use, understand and takes minimal time to execute. The variables of the process have a 1:1 mapping to the real world parameters. The process allows for simulation of the projects with parameters of different portfolios while holding other factors constant. The process of collecting data and modeling is of low costs and lower that the expected future benefits. The overall costs of maintaining the process and the portfolio are kept at a minimum as compared to the other selection procedures (Archer & Ghasemzadeh, 1999). Application of the process to the SBU The application process will follow the hierarchical process. The process will have two levels in strategic buckets and tactical portfolio decision. Strategic buckets This level just divides projects into sub-groups. Each project group will be allocated specific strategic bucks. The policy bucks are resources that are assigned to the subsets to enable them to achieve the overall project goal. The issue of having the strategic bucks matches the selection criteria of a balanced portfolio. The balancing of resources is done by the corporate strategy (Saaty, 1994). Tactical portfolio decision Project management 6 This level involves the selection of the projects. Various tools and techniques will be used to narrow down to the best alternative in each project categories. The stage will make use of the stage/gate process and use it parallel to the project portfolio management to realize any resources that may be released by active projects and be reallocated to the new projects (Saaty, 1994). Method of application The organization will have to use the numerical models given the fact the selection of the processes factor in costs. The strategic goals of the business are also associated with the reduction of costs such as operating expenses, warehousing, and operating costs. Financial appraisal profile The model consists of three sub-models which are the NPV profile, strategic index, and the project risk profile. The model can evaluate three fundamental attributes of commercial projects: strategic benefits, risk, and finance. The NPV profile calculates the net present value of a project using a predetermined discount rate. The finance attribute also uses the payback index to assess the time required to recover the initial costs (Lefly & Ryan, 2005). The risk profile enables the organization to set up the tolerance point which is subject to the judgment of the appraisal team. The risk value is assigned values that range from 0 to -10. Negatives values indicate that the risks are real threats to the identified projects. The strategic index involves the identification of significant benefits of all projects by the top level management. The projects are ranked using the advantages as the basis. Both evaluation and ranking of the projects have a scale within 0 and 10. This model enables benefits to be considered at the project and corporate levels (Lefly& Ryan, 2005). Scoring the projects Project management 7 Unweighted factor scoring model This model works by assigning numbers to the key factors used to choose projects. A score of five means very good, and that of on suggests that the factor is very poor. Four is good; three is fair while two is poor. The key measures are supposed to be common to all the projects under selection so as to enable ease of ranking and decision making (Dean &Nishry, 1965). Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total Project A Weight The total weight is then determined for each project, and the best projects are chosen. The decision is based on the projects with the largest total weights. Raj Patel PART 2 The factors that will form the basis of the decisions are realism, capability, flexibility, ease of use and ease of communication. The realism of the managerial situation is that there is a fixed budget above which the senior manager cannot exceed. The budget is set at $24 million, and the senior manager cannot choose a product or products that exceed $6million in a single quarter. The selected project should be capable of meeting a majority of the strategic goals. The project should at minimum be able to reduce costs, increase revenues and help towards expansion growth. Project management 8 The first step is to setup and categorizes the projects. In this case, the projects will be classified as strategic in which the company desires to have a competitive advantage in the future. The executive will also set up a portfolio management committee to steer the whole process. The second stage is the identification of needs which can be related to the strategic goals identified but the company. The second step will be planning which involves evaluation of the projects and choosing the best alternative. Using the hierarchical process, the strategic bucks have already been allocated regarding the resources required by each firm. The planning section falls under the tactical portfolio decision which involves choosing an appropriate project. The financial appraisal model will then be used to help in the decision making, and later be subjected to a scoring model. Project call center Costs Initial costs Labor costs Total $8.5 million $0.04million $8.54 million Evaluation factors Increased labor costs Impact on normal operations Ease of management Yes No Yes Scoring model Project call center Project management Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total 9 Weight 5 2 1 8 Project ordering upgrade Costs Initial costs Less Labor costs ($35000*7) Total $2.5 million ($0.245million) $8.2.255 million Evaluation factors Increased labor costs Impact on normal operations Ease of management No Yes Yes Scoring model Project call center Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total Project Rocky Weight 4 5 5 14 Project management 10 Costs Initial costs Operational fees Total $13 million ($0.4million) $13.4 million Evaluation factors Increased labor costs Impact on normal operations Ease of management No Yes No Scoring model Project call center Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total Weight 5 3 4 5 1 18 Project Europa Costs Initial costs Operational fees Total $11 million ($0.5million) $11.5 million Evaluation factors Increased labor costs Impact on normal operations Yes Yes Project management Ease of management 11 No Scoring model Project call center Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total Weight 4 3 4 5 1 17 Project robot Costs Initial costs Less: labor costs (45*35000) Total $17 million ($1.575million) $15.425million Evaluation factors Increased labor costs Impact on normal operations Ease of management No Yes No Scoring model Project call center Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Weight 3 5 5 Project management Facilitate expansion by 10% No additional staff needed Total 12 5 1 19 Project tableware Costs Initial costs Operational fees Total $5.5 million $0.3million $5.8 million Evaluation factors Increased labor costs Impact on normal operations Ease of management Yes Yes Yes Scoring model Project call center Performance measure 10% increase in revenue 15% increase in customer satisfaction Reduce operating costs Reduce warehouse and overhead costs Facilitate expansion by 10% No additional staff needed Total Weight 2 2 5 5 1 15 MEMORANDUM TO: Vice President FROM: senior manager Project management 13 DATE: SUBJECT: projects recommendation The results of the individual project's screening suggest that the portfolio should consist of Project Robot. The project has the highest scores than the other projects. The project Robot meet a majority of the project needs and meet the evaluation factors such as ease of management and minimal effect on the normal operations of the organization. The initial costs of the project are within the set budget limit and are flexible regarding the amounts being spread evenly over the financial year. The project ensures that the company will expand into other geographically and increase the revenues. Time plan Project Robot Quarter 1 $4.25m 2 $4.25m 3 $4.25m 4 $4.25m In as much as the project has the highest initial cost, the operational and warehouse costs will be reduced significantly while giving an option of renting the available space to earn revenue. Raj Patel Project management 14 Reference Archer, N. P., &Ghasemzadeh, F. (1999). An integrated framework for project portfolio selection. International Journal of Project Management, 17(4), 207-216. Dean, B. V., &Nishry, M. J. (1965). Scoring and profitability models for evaluating and selecting engineering projects. Operations Research, 13(4), 550-569. Lefley, F., & Ryan, B. (2005). The financial appraisal profile model. Palgrave Macmillan. Levine, H. A. (2007). Project portfolio management: a practical guide to selecting projects, managing portfolios, and maximizing benefits. John Wiley & Sons. Saaty, T. L. (1994). Highlights and critical points in the theory and application of the analytic hierarchy process. European Journal of operational research, 74(3), 426-447