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Week 1 Tutorial Solutions

Chapter 1 review questions
1. Define a project. What are five characteristics which help differentiate projects
from other functions carried out in the daily operations of the organization?
A project is a complex, non routine, one-time effort limited by time, budget, resource,
and specifications. Differentiating characteristics of projects from routine, repetitive
daily work are below:
a.
b.
c.
d.
e.

A defined life span

A well-defined objective
Typically involves people from several disciplines
A project life cycle
Specific time, cost, and performance requirements.

2. What are some of the key environmental forces that have changed the way
projects are managed? What has been the effect of these forces on the
management of projects?
Some environmental forces that have changed the way we manage projects are the
product life cycle, knowledge growth, global competition, organization downsizing,
technology changes, time-to-market. The impact of these forces is more projects per
organization, project teams responsible for implementing projects, accountability,
changing organization structures, need for rapid completion of projects, linking
projects to organization strategy and customers, prioritizing projects to conserve
organization resources, alliances with external organizations, etc.
3. Why is the implementation of projects important to strategic planning and the
project manager?
Strategic plans are implemented primarily through projectse.g., a new product, a
new information system, a new plant for a new product. The project manager is the
key person responsible for completing the project on time, on budget, and within
specifications so the projects customer is satisfied. If the project is not linked to the
strategic plan of the organization, resources devoted to the project are wasted and a
customer need is not met. This lack of connectivity occurs more in practice than most
would believe.
4. The technical and sociocultural dimensions of project management are two sides
to the same coin. Explain.
The system and sociocultural dimensions of project management are two sides of the
same coin because successful project managers are skillful in both areas. The point is
successful project managers need to be very comfortable and skillful in both areas.

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5. What is meant by an integrative approach to project management? Why is this

approach important in todays environment?
An integrative approach to project management is one in which all the parts are
interrelated. This approach is important because it can give an organization a
competitive edge in todays environment. An integrative approach includes two parts.
First, projects must have a strong link to the organizations strategic plan, which is
directed toward meeting the customers needs. A project priority system reinforces
this linkage by prioritizing projects according to their contribution to the strategic
plan and allocates resources by the priorities set. Second, an integrative approach
provides an integrated system for the actual implementation of the projects. This
includes an information system which supports decision making and a sociocultural
environment which creates a positive, active contribution from team members
responsible for completing the project.
Chapter 2 review questions
1. Describe the major components of the strategic management process.
The strategic management process involves assessing what we are, what we want to
become, and how we are going to get there. The major generic components of the
process include the following:
a.
b.
c.
d.
e.

Defining the mission of the organization

Analysis of the external and internal environments
Setting objectives
Formulating strategies to reach objectives
Implementing strategies through projects.

2. Explain the role projects play in the strategic management process.

Strategy is implemented primarily through projects. Successful implementation of
projects means reaching the goals of the organization and thus meeting the needs of
its customers. Projects that do not contribute to the strategic plan waste critical
organization resources.
3. How are projects linked to the strategic plan?
Projects are linked to the strategic plan because projects represent how a strategy is to
be implemented. Since some projects are more important than others, the best way to
maximize the organizations scarce resources is through a priority scheme which
allocates resources to a portfolio of projects which balance risk and contribute the
most to the strategic plan.

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4. The portfolio of projects is typically represented by compliance, strategic, and

operations projects. What impact can this classification have on project
selection?
By carefully aligning your project proposal with one classification, you may increase
the chances of it being selected. Remember, senior management typically allots
budgets for each category independent of actual project selection. Knowledge of
funds available, risk portfolio, senior management bias, etc. may cause some to
attempt to move their project proposal to a different classification to improve the
chances of the project being selected.
5. Why does the priority system described in this chapter require that it be open
and published? Does the process encourage bottom-up initiation of projects?
Does it discourage some projects? Why?
An open, published priority system ensures projects are selected on the basis of their
contribution to the organization. If the priority system is not open, squeaky wheels,
strong people, and key departments all get their projects selected for the wrong
reasons. Bottom-up is encouraged because every organization member can self
evaluate their project idea against priorities and so can everyone else in the
organization. To some, this approach may look intimidating but rarely is in practice;
however, it does discourage projects that clearly will not make positive, significant
contributions to the organization vision.
6. Why should an organization not rely only on ROI to select projects?
Financial criteria, like ROI alone, will not ensure that selected projects contribute to
the mission and strategy of a firm. Other considerations such as developing new
technology, public image, brand loyalty, ethical position, and maintaining core
competencies should be considered. Furthermore, it is difficult or next to impossible
to assess ROI for many important projects (e.g., Y2K projects). While ROI is likely
to be a key consideration for many organizations, multiple screening criteria are
recommended for selecting and prioritizing projects.
7. Discuss the pros and cons of the checklist versus the weighted factor methods of
selecting projects.
Checklist Model

Flexible

Applies over a wide range of different types of projects, divisions, and

locations

Impossible to rigorously compare and rank project by priority

Politics, power, and manipulation of project selection is very possible.

Weighted Factor Model

Allows comparison and ranking of potential projects

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Open system
Allows for self evaluation of proposed project
Power and politic games are exposed.

8. Consider Honigs Project Portfolio Matrix Model (Figure 2.7) and the Project
relativity matrix (Figure 2.8). When would each of these matrices be used and
why?
Both of these matrices lay out a framework for portfolio management to help align
organisational strategy with project selection and outcomes. The Honig matrix uses
the analysis of the easiness test with the worthiness test in order to prioritise project
selection, approval and resource allocation. It also addresses whether a project fits
within an organisations core competencies. The axis on the Matheson Project
Relativity Matrix covers technical feasibility, with commercial potential for portfolio
decisions and investment in order to prioritise projects. Although originating from an
R&D perspective this tool can be applied to any portfolio or business.

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Chapter 2 Exercises
2. Two new software projects are proposed to a young, start-up company. The
Alpha project will cost $150,000 to develop and is expected to have annual net cash
flow of $40,000. The Beta project will cost $200,000 to develop and is expected to
have annual net cash flow of $50,000. The company is very concerned about their
cash flow. Using the payback period, which project is better from a cash flow
standpoint? Why?
Payback = Investment / Annual Savings
Project Alpha: $150,000 / $40,000 = 3.75 years
Project Beta: $200,000 / $50,000 = 4.0 years
Project Alpha is the better payback.
3. A five-year project has a projected net cash flow of $15,000, $25,000, $30,000,
$20,000, and $15,000 in the next five years. It will cost $50,000 to implement the
project. If the required rate of return is 20 percent, conduct a discounted cash
flow calculation to determine the NPV.
A
1
2
3
4
5
6
7
8
9
10

Exercise 2.3
Net Present Value Example
Project 2.3
Investment
Cash Inflows
Required Rate of Return
NPV =

Year 0
Year 1 Year 2 Year 3
Year 4
Year 5
-$50,000
$15,000 $25,000 $30,000 $20,000 $15,000
20%
$12,895

Formula: =C6+NPV(B8,D7:H7)

Since the NPV is positive, accept project.

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Case Study
A Day in the Life
This case shows a glimpse of what it is like to be a project manager. It also underscores
that being a project manager is more social than technical and that project managers
spend the majority of their time interacting with various people who impact on a project.
1. How effectively do you think Rachel spent her day?
Answers will vary. Some students may argue that she is inefficient and does not have
control over her time. Others will argue that this is the nature of the job, and is to be
expected. They will point out that she is appropriately spending her time managing
relations and keeping on top of things that affect the project.
2. What does the case tell you about what it is like to be a project manager?
Rachels day underscores three key functions project managers spend their time
performing:
a. Building and sustaining interpersonal relations. Project managers have to
network and develop good working relations with team members and other
project stakeholders.
b. Information gathering and dissemination. Project managers are the information
hub for their projects. They are in constant communication with various
stakeholders, collecting information from various sources, and sending it to those
who have a need to know.
c. Decision-making. Project managers consult with various people to make
decisions necessary to complete the project.

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