LECTURE 2

THE PROJECT INTEGRATION MANAGEMENT

Instructor: Dr. Safwan Qasem
Course: CSC 443: IT Project Management
1 CSC 443- IT Project Management Dr. Safwan Qasem
Spring 2011-
2012
Textbooks for CSC 443
This course is using following
resources as references:

A Guide to The Project
Management Body of
Knowledge (PMBOK Guide)
Fourth Edition, 2008 PMI

PMP Exam Prep, Ritas
Course in a Book for passing
the PMP Exam, Sixth Edition
2009 Rita Mulcahy, PMP

Lecture Overview
This lecture is related to the contents of
Chapter 4 in the PMBOK Guide.
3
CSC 443- IT Project Management Dr. Safwan Qasem Spring 2011-2012
Project Integration Management
Spring 2011-2012 CSC 443- IT Project Management Dr. Safwan Qasem
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Process and activities needed to identify, define,
combine, unify, and coordinate the various
processes and project management activities
within the Project Management Process Groups.

Integration Management Processes
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Develop Project CharterThe process of developing a document that formally
authorizes a project or a phase and documenting initial requirements that satisfy the
stakeholders needs and expectations.
Develop Project management PlanThe process of documenting the actions
necessary to define, prepare, integrate, and coordinate all subsidiary plans.
Direct and manage Project executionThe process of performing the work
defined in the project management plan to achieve the projects objectives.
Monitor and Control Project workThe process of tracking, reviewing, and
regulating the progress to meet the performance objectives defined in the project
management plan.
Perform Integrated Change ControlThe process of reviewing all change requests,
approving changes, and managing changes to the deliverables, organizational
process assets, project documents, and the project management plan.
Close Project or PhaseThe process of finalizing all activities across all of the
Project Management Process Groups to formally complete the project or phase.
Project Integration Management
Knowledge
Area
Process
Initiating Planning Executing Monitoring & Contol Closing
Scope
Develop
Project
Charter
Develop Project
Management
Plan
Direct and
Manage Project
Execution
Monitor and Control
Project Work
Perform Integrated
Change Control
Close
Project
Enter phase/
Start project
Exit phase/
End project
Initiating
Processes
Closing
Processes
Planning
Processes
Executing
Processes
Monitoring &
Controlling Processes
4.1 Develop Project Charter
The process of developing a document that formally authorizes
a project or a phase and documenting initial requirements that
satisfy the stakeholders needs and expectations
Inputs
1. Project statement of
work
2. Business case
3. Contract
4. Enterprise environmental
factors
5. Organizational process
assets

Tools &
Techniques
1. Expert judgment
Outputs
1. Project charter
Develop Project Charter (Input)
Project are authorized by someone external to the project such as sponsor, PMO,
portfolio steering committee.
Project charter can be created by them or delegated to Project Manager.
Statement of Work (SOW)
A narrative description of products or services to be delivered by the project.
The SOW references:
Business need
Product scope description
Strategic plan
Business case
Provide the necessary information from business standpoint to determine
whether or not the project is worth the required investment.
Project Selection
Two categories:
1. Benefit measurement methods (Comparative approach)
Murder board (a panel of people who try to shoot down a new project idea)
Peer review
Scoring models
Economic models (described next)

2. Constrained optimization methods (Mathematical approach)
Linear programming
Integer programming
Dynamic programming
Multi-objective programming

Project Selection Economic Models
Present value (PV): The value today of future cash flows



Net present value (NPV): Project with positive & greater NPV value is better
Internal rate of return (IRR): Project with greater IRR value is better
Payback period:
The number of time periods it takes to recover your investment in the project before you start
accumulating profit.
Benefit-cost ratio:
compares the benefits to the costs of different options
relates to costing projects and to determining what work should be done
Project with greater benefit-cost ratio value is better
http://www.onemint.com/2010/11/23/what-is-irr-and-how-is-it-calculated/


n
r 1
FV
PV

FP = future value
r = interest rate
n = number of time period
Payback period
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The payback period is the length of time it takes the company to recoup the initial costs of
producing the product or service of the project. This method compares the initial investment to
the cash inflows expected over the life of the product or service.
For example, say the initial investment on our project is $200,000 with expected cash inflows
of $25,000 per quarter every quarter for the first 2 years, and $50,000 per quarter from
thereon. The payback period is 2 years and can be calculated as follows:
Cash inflows = $25,000 x 4 (quarters in a year) = $100,000/year total inflow
Year 1 inflows = $100,000
Year 2 inflows = $100,000
Total = $200,000
Payback is reached in 2 years.
The fact that inflows are $50,000 per quarter starting in year 3 makes no difference as
payback is reached in 2 years.
Payback period is the least precise of all the cash flow calculations. Because payback
period does not consider the value of the cash inflows made in later years, commonly called
the time value of money.
Payback period
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Project A Project B
Initial Investment $ 300 000 $ 300 000
Year 1 Income $ 20 000 $ 280 000
Year 2 Income $ 280 000 $ 10 000
Year 3 Income $ 50 000 $ 10 000
Year 4 Income $ 100 000 $ 180 000
Year 5 Income $ 50 000 $ 10 000
Balance $ 200 000 $ 100 000
Payback Period is 2 years 3 years
Considering Payback period which project is better?
Considering a cost of capital 10 % per year, which project is the best?
Net Present Value
Spring 2011-2012
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CSC 443- IT Project Management Dr. Safwan Qasem
Project A (Cost of Capital 12%) Project B (Cost of Capital 12%)
Internal rate of return (IRR)
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Internal rates of return (IRR) are commonly used to evaluate the
desirability of investments or projects. The higher a project's internal
rate of return, the more desirable it is to undertake the project.
Assuming all projects require the same amount of up-front
investment, the project with the highest IRR would be considered the
best and undertaken first.
The internal rate of return on an investment or project is the that
makes the Net Present Value of all cash flows (both positive and
negative) from a particular investment equal to zero.

year
year
IRR
e FutureValu
NPV
) 1 (
Benefit-cost ratio
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benefit-cost ratio (BCR) is an indicator, used in the
formal discipline of cost-benefit analysis, that attempts
to summarize the overall value for money of a project
or proposal. A BCR is the ratio of the benefits of a
project or proposal, expressed in monetary terms,
relative to its costs, also expressed in monetary terms.
All benefits and costs should be expressed in discounted
present values.
The higher the BCR the better the investment. General
rule of thumb is that if the benefit is higher than the cost
the project is a good investment.

Project Selection Important Terms
Economic Value Added (EVA):
concerned with whether the project returns to the company more value than it costs.

Opportunity Cost:
the opportunity given up by selecting one project over another

Sunk Costs:
Are expended costs
Should not be considered when deciding whether to continue with a troubled project.

Law of Diminishing Returns:
after a certain point, adding more input/resource will not produce a proportional
increase in productivity.
Economic Value Added (EVA)
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From a commercial standpoint, Economic Value Added (EVA) is the most
successful performance metric used by companies and their consultants.
Simply, EVA is the profit earned by the firm less the cost of financing the
firm's capital. The idea is that value is created when the return on the firm's
economic capital employed is greater than the cost of that capital;
EVA = net operating profit after taxes a capital charge
therefore EVA = NOPAT (c capital), or alternatively
EVA = (r x capital) (c capital)
Where r = rate of return, and c = cost of capital
NOPAT is the net operating profit after tax, with adjustments and
translations, generally for the amortization of goodwill, the capitalization
of brand advertising and others non-cash items.
Opportunity Cost
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Scarcity of resources is one of the more basic concepts of economics. Scarcity
necessitates trade-offs, and trade-offs result in an opportunity cost.
While the cost of a good or service often is thought of in monetary terms, the
opportunity cost of a decision is based on what must be given up (the next best
alternative) as a result of the decision. Any decision that involves a choice between
two or more options has an opportunity cost.
Opportunity cost contrasts to accounting cost in that accounting costs do not consider
forgone opportunities.
Consider the case of an MBA Student who pays $30,000 per year in tuition and
fees at a private university. For a two-year MBA program, the cost of tuition and
fees would be $60000. This is the monetary cost of the education.
However, when making the decision to go back to school, one should consider the
opportunity cost, which includes the income that the student would have earned if
the alternative decision of remaining in his or her Job had been made. If the student
had been earning $50,000 per year and was expecting a 10% salary Increase in
one year, $105,000 in salary would be foregone as a result of the decision to
return to school. Adding this amount to the educational expenses results in a cost of
$165,000 for the degree.
http://www.netmba.com/econ/micro/cost/opportunity/
Sunk Costs
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In economics and business decision-making, sunk costs are retrospective
(past) costs that have already been incurred and cannot be recovered.
Sunk costs are sometimes contrasted with prospective costs, which are
future costs that may be incurred or changed if an action is taken.
In traditional microeconomic theory, only prospective (future) costs are
relevant to an investment decision. Traditional economics proposes that
an economic actor not let sunk costs influence one's decisions, because
doing so would not be rationally assessing a decision exclusively on its
own merits.
Evidence from behavioral economics suggests this theory fails to predict
real-world behavior. Sunk costs greatly affect actors' decisions, because
many humans are loss-averse and thus normally act irrationally when
making economic decisions.

http://en.wikipedia.org/wiki/Sunk_costs

Law of Diminishing Returns
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Law of diminishing returns, in economics, law stating that if one
factor of production is increased while the others remain constant,
the overall returns will relatively decrease after a certain point.
For example, if more and more laborers are added to harvest a
wheat field, at some point each additional laborer will add
relatively less output than his predecessor did, simply because he
has less and less of the fixed amount of land to work with.
The principle, first thought to apply only to agriculture, was later
accepted as an economic law underlying all productive enterprise.
The point at which the law begins to operate is difficult to ascertain,
as it varies with improved production technique and other factors.
Read more: http://www.answers.com/topic/law-of-diminishing-
returns#ixzz1m1SGDC2l
Project Selection Important Terms
Working Capital
current assets minus current liabilities for an organization or
amount of money the company has available to invest

Depreciation
Straight line depreciation
The same amount of depreciation is taken each year.

Accelerated depreciation
Depreciates faster than straight line
Two forms: (1) Double Declining Balance, (2) Sum of the Years
Digits


Develop Project Charter (Tools & Techniques, Output)
Expert Judgment, includes:




Project Charter, includes:
Project purpose or justification,
Measurable project objectives and related success criteria,
High-level requirements,
High-level project description,
High-level risks,
Summary milestone schedule,
Summary budget,
Project approval requirements
Assigned project manager, responsibility, and authority level
Name and authority of the sponsor or other person(s) authorizing the project charter.

Other unit within organization
Consultants
Stakeholders including customer or sponsor
Subject matter experts
PMO
Industry groups
Professional & technical association

4.2 Develop Project Management Plan
The process of documenting the actions necessary to
define, prepare, integrate and coordinate all subsidiary
plans.
Inputs
1. Project charter
2. Business case
3. Outputs from planning
processes
4. Enterprise environmental
factors
5. Organizational process
assets
Tools &
Techniques
1. Expert judgment
Outputs
1. Project management
plan
Project Management Plan (Output)
The strategy for managing the project and the processes in each
knowledge area
Covers how you will define, plan, manage, and control the project.
Also includes:
Change management plan
Configuration management plan
Requirements management plan
Process improvement plan

How to handle a problem on a project?
look at your management plan to see how you planned to handle such a
problem.
Baseline (Performance measurement baseline)
The project management plan contains scope, schedule, and cost
baselines, against which the project manager will need to report
project performance.
Baseline created during planning.
Scope baseline
The project scope statement, work breakdown structure (WBS), and WBS
dictionary
Schedule baseline
The agreed-upon schedule, including the start and stop times
Cost baseline
The time-phased cost budget

Deviations from baselines are often due to incomplete risk
identification and risk management.
Change Management Plan
Describes how changes will be managed and controlled.
Covers for the project as whole
May includes:
Change control procedures (how and who)
The approval levels for authorizing changes
The creation of a change control board to approve changes
A plan outlining how changes will be managed and controlled
Who should attend meetings regarding changes
Tools to use to track and control changes

Each knowledge area are described in the individual
management plans
Configuration Management Plan
Defines how you will manage changes to the
deliverables and the resulting documentation, including
which organizational tools you will use
4.3 Direct & Manage Project Execution
The process of performing the work defined in the project
management plan to achieve the projects objectives.

Inputs
1. Project management
plan
2. Approved change
request
3. Enterprise environmental
factors
4. Organizational process
assets
Tools &
Techniques
1. Expert judgment
2. Management
information system
Outputs
1. Deliverables work
2. Performance
information
3. Change requests
4. Project management
plan updates
5. Project document
updates
4.4 Monitor & Control Project Work
The process of tracking, reviewing, and regulating the
progress to meet the performance objectives defined in
the project management plan.

Inputs
1. Project management
plan
2. Performance reports
3. Enterprise environmental
factors
4. Organizational process
assets
Tools &
Techniques
1. Expert judgment
Outputs
1. Change requests
2. Project management
plan updates
3. Project document
updates
4.5 Perform Integrated Change Control
The process of reviewing all change requests, approving
changes and managing changes to deliverables,
organizational process assets, project documents and
the project management plan.
Inputs
1. Project management
plan
2. Performance reports
3. Enterprise environmental
factors
4. Organizational process
assets

Tools &
Techniques
1. Expert judgment
Outputs
1. Change requests
2. Project management
plan updates
3. Project document
updates
4.6 Closing Project or Phase
The process of of finalizing all activities across all of the
Project Management Process Groups to formally complete
the project or phase.

Inputs
1. Project management
plan
2. Accepted deliverables
3. Organizational process
assets
Tools &
Techniques
1. Expert judgment
Outputs
1. Final product, service or
result
2. Organizational process
assets updates