Needs and Demands that drive Projects

Projects are usually come as result from business requirements, opportunities, or problems. Most of the projects will fit one of the following needs and demands:

• Market demand. The demands of the marketplace can drive the need for a project. For example, a bank initiates a project to offer customers the ability to apply for mortgage loans over the Internet because of a drop in interest rates and an increase in demand for refinancing and new home loans.
• Strategic opportunity/business need. The new phone system that was announced at the quarterly meeting came about as a result of a business need. The CEO, on advice from his staff, was advised that call volumes were maxed on the existing system. Without a new system, customer service response times would suffer, and that would eventually affect the bottom line.
• Customer request. Most companies have customers, and their requests can drive new projects. Customers can be internal or external to the organization. Government agencies don’t have external customers, but there are internal customers within departments and across agencies. Perhaps you work for a company that sells remittance-processing equipment and you’ve just landed a contract with a local utility company. This project is driven by the need of the utility company to automate its process or upgrade its existing process. The utility company’s request to purchase your equipment and consulting services is the project driver.
• Technological advance. Many of us own a multifunction cell phone that keeps names and addresses handy along with a calendar and a to-do list of some kind. I couldn’t live without mine. However, a newer, better version is always coming to market. Satellite communications now allows these devices to also act as GPS units. The introduction of satellite communications is an example of a technological advance. Because of this introduction, electronics manufacturers revamped their products to take advantage of this new technology.
• Legal requirement. Private industry and government agencies both generate new projects as a result of laws passed during every legislative season. For example, new sales tax laws might require new programming to the existing sales tax system. The requirement that food labels appear on every package describing the ingredients and the recommended daily allowances is another example of legal requirements that drive a project.
• Ecological impacts. Many organizations today are undergoing a “greening” effort to reduce energy consumption, save fuel, reduce their carbon footprint, and so on. These are examples of ecological impacts that result in projects.
• Social need. The last need is a result of social demands. For example, perhaps a developing country is experiencing a fast-spreading disease that’s infecting large portions of the population. Medical supplies and facilities are needed to vaccinate and treat those infected with the disease. Another example might include manufacturing or processing plants that voluntarily remove their waste products from water prior to putting the water back into a local river or stream to prevent contamination.

All of these needs and demands represent opportunities, business requirements, or problems that need to be solved. Management must decide how to respond to these needs and demands, which will more often than not initiate new projects.

Project Selection Method

Most organizations have a formal, or at least semi-formal, process for selecting and prioritizing projects. Selection methods measure the value of what the product, service, or result of the project will produce and how it will benefit the organization. Selection methods involve the types of concerns executive managers are typically thinking about. This includes factors such as market share, financial benefits, return on investment, customer retention and loyalty, and public perceptions.

There are generally two categories of selection methods: mathematical models (also known
as calculation methods) and benefit measurement methods (also known as decision models).
Decision models examine different criteria used in making decisions regarding project selection,
while calculation methods provide a way to calculate the value of the project, which is
then used in project selection decision making.

Mathematical Models
Mathematical models uses linear, dynamic, integer, nonlinear, and/or multi-objective programming in the form of algorithms or in other words, a specific set of steps to solve a particular problem. Organizations considering undertaking projects of enormous complexity might use mathematical modeling techniques to make decisions regarding these projects.

Benefit Measurement Methods
Benefit measurement methods employ various forms of analysis and comparative approaches to make project decisions.

The following are different types of the benefit measurement methods:

   Comparative Approaches 

• Cost-Benefit Analysis, compares the cost to produce the product, service, or result of the project to the benefit that the organization will receive as a result of executing the project.
• Scoring Models, decides on the criteria for example, profit potential, marketability of the product or service, ability of the company to quickly and easily produce the product or service, and so on. Each of these criteria is assigned a weight depending on its importance to the project committee. More important criteria should carry a higher weight than less important criteria.

   Benefit Contribution Methods

• Cash Flow Analysis Techniques
• Payback Period
  Payback period is the length of time it takes the company to recoup the initial costs of producing the product, service, or result of the project. This method compares the initial investment to the cash inflows expected over the life of the product, service, or result.
• Discounted Cash Flows
  Discounted cash flow uses Present Value (PV) formula for selection purposes or when considering alternative ways of doing the project. It will select project with the highest investment to the company.
• Net Present Value (NPV)
  The company expects to receive revenues, or cash inflows, from the resulting project. NPV allows you to calculate an accurate value for the project in today’s dollars. Projects with high returns early in the project are better projects than projects with lower returns early in the project.
• Internal Rate of Return (IRR)
  IRR is the discount rate when the present value of the cash inflows equals the original investment. When choosing between projects or when choosing alternative methods of doing the project, projects with higher IRR values are generally considered better than projects with low IRR values.
• Economic Models.
  Project selection based on the economic value among the projects.

Project Charter

The project charter is the document that formally authorizes a project. The project initiator or sponsor issues the project charter. The project charter provides the project manager with the authority to apply organizational resources to project activities. A project manager is identified and assigned as early in the project as is feasible. The project manager should always be assigned prior to the start of planning, and preferably while the project is being developed.

The project charter, either directly or by reference to other documents, should address the following information:

• Requirements that satisfy customer, sponsor, and other stakeholder needs, wants, and expectations 
• Business needs, high-level project description, or product requirements that the project is undertaken to address 
• Project purpose or justification 
• Assigned project manager and authority level 
• Summary of milestone schedule 
• Stakeholder influences 
• Functional organizations and their participation 
• Organization, environmental, and external assumptions and constraints 
• Business case justifying the project, including return on investment 
• Summary of budget