Chapter

3:
Project Integration Management
Stevbros Training and Consultancy
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The key role

The key role of the project manager is to
perform integration
The key role of the project team is to
concentrate on completing the project
activities
The key role of the project sponsor is to
protect the project team from unnecessary
changes and loss of resources
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The key role

The project expediter works as staff assistant
and communications coordinator. The
expediter cannot personally make or enforce
decisions.
The project coordinators have power to make
some decisions, have some authority, and
report to a higher-level manager.

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Project selection
methods

Discounted cash flow

Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Benefit Cost Ratio (BCR)
Return on Investment (ROI)

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Discounted
cash flow
Present Value (PV): means value today of
future cash flows:

PV = FV/(1 + i)n
PV - Present Value to be calculated
FV - Expected Future Cash inflow
i - Notional Interest or Expected Rate of Interest

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Net Present Value

Net Present Value (NPV): present value of the
total benefits (income or revenue) less the
costs over time period:
NPV = PV1 + PV2+ PV3 .. + PVn - Invested Amount

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Net Present Value

Example:
Invested Amount : $500,000
Income Expected (Future Value)- 1 Year : $200,000
Income Expected (Future Value)- 2 Year : $300,000
Income Expected (Future Value)- 3 Year : $100,000
Rate of Interest : 5% per year. Now calculate the PV for every year:

Year
1
2
3

Future Value
$200,000
$300,000
$100,000

Calculation

200,000/(1 + 0.05)
300,000/(1 + 0.05)2
100,000/(1 + 0.05)3

PV
190,476.2
272,108.84
86,383.76

NPV for the project = Total PV - Original Investment = $548,968.8 - $500,000

=> So the final NPV is 48,968.8.
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Internal
Rate of Return
Internal Rate of Return (IRR): is the rate of
discounting at which the PV of costs match the
PV of benefits.
In other words, it is the rate of return internal
to the project and it is the interest rate that
makes the NPV zero.
The company should accept projects where IRR
is greater than interest rate and should reject
projects where IRR is less than interest rate.
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Internal
Rate of Return
Example:

Invest $2,000 now, receive 3 yearly payments of $100

each, plus $2,500 in the 3rd year. What is IRR?
Let us try 10% interest:

Now: PV = -$2,000

Year 1: PV = $100 / 1.10 = $90.91

Year 2: PV = $100 / 1.102 = $82.64
Year 3: PV = $100 / 1.103 + $2,500 / 1.103 = $75.13 + $1,878.29
NPV = -$2,000 + $90.91 + $82.64 + $75.13 + $1,878.29 = $126.97

I will take a better guess now, and try a 12% interest

rate.
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Internal
Rate of Return
Try 12% interest rate

Now: PV = -$2,000

Year 1: PV = $100 / 1.12 = $89.29

Year 2: PV = $100 / 1.122 = $79.72
Year 3: PV = $100 / 1.123 + $2,500 / 1.123 = $71.18 + $1,779.45
NPV = -$2,000 + $89.29 + $79.72 + $71.18 + $1,779.45 = $19.64

Try 12.4% interest rate

Now: PV = -$2,000

Year 1: PV = $100 / 1.124 = $88.97

Year 2: PV = $100 / 1.1242 = $79.15
Year 3: PV = $100 / 1.1243 + $2,500 / 1.1243 = $70.42 + $1,760.52
NPV = -$2,000 + $88.97 + $79.15 + $70.42 + $1,760.52 = -$0.94

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Internal
Rate of Return
That is good enough! Let us stop there and say the Internal
Rate of Return is 12.4%.In a way it is saying "this
investment would earn 12.4%" (assuming it all goes
according to plan!).

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NPV, IRR questions

in PMP exam
Q: You have two projects to choose from. Project X will take 2
years to complete and has a NPV of $35,000. Project Y will
take 5 years to complete and has an NPV of $95,000. Which
one will you take up?
A: Project Y, because it has a higher NPV. Dont get confused
with the longer duration of the project. What is important is
that the NPV should be greater.
Q: If you have to choose between Project A with an IRR of
25% or Project B with an IRR of %15. Which one will you take
up?
A: Project A. Reason: the IRR of Project A is greater than the
one for Project B.
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Payback period
Payback period: the number of time periods it
takes to recover your investment in the project
before your start accumulating profits.
Q: You have 2 projects to choose from. Project A
with payback period of 5 months or Project B with
a payback period of 12 months. Which one would
you go for?
A: Project A.

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Benefit Cost Ratio

Benefit Cost Ratio (BCR): the benefit cost ratio
compares the present value of benefits to the
present value of costs (benefit/cost). A BCR of
more than 1 means that the benefits are
greater than the cost.
Q: if the BCR of Project A is 2.5 and BCR of Project
B is 1.5, which project would you select?
A: The answer is Project A
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Return on
Investment
Return on Investment (ROI): is the rate of
return on the project normalized by the initial
investment.
Example: if a project involves an initial investment
of $100,000 and on average it results in benefits of
$20,000 per year, the ROI is 20,000/100,000 = 20%

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Project selection
methods
Net present value: (NPV)
select greatest one

Internal Rate of Return: (IRR)

select highest one

Payback period:

select shortest one

Benefit-Cost ratio: (BCR)

select higher one

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Terms
Opportunity Cost: refers to the opportunity
given up by selecting one project over another
Question: you have 2 projects to choose from:
project A with NPV of 45,000 or project B with an
NPV of $85,000. What is the opportunity cost of
selecting project B?
Answer: $45,000

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Terms
Sunk Costs: are expended costs. Be aware of
that accounting standards say that sunk costs
should NOT be considered when deciding
whether to continue with a troubled project.
Question: you have a project with an initial budget
of $1,000,000. You are halfway through the project
and have spent $2,000,000. Do you consider the
$1,000,000 over budget when determining
whether to continue with the project?
Answer: No. the money spent is gone.
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Terms
Depreciation: Equipment purchased by a
company lose value over time. Accounting
standards call this depreciation.

Straight Line Depreciation: the same amount of

depreciation is taken each year:
E.g: A $1,000 item with a 10-year useful life and no
salvage value (how much the item is worth at the
end of its life) would be depreciated at $100 per year.
Accelerated Depreciation:
E.g. A $1,000 item with a 10-year useful life and no
salvage value (how much the item is worth at the
end of its life) would be depreciated at $180 the first
year, $150 the second, $130 the next, etc.

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Processes
Initiating
process
group

Planning process Executing

group
process
group

Develop
project
charter

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Develop
project
management
plan

Monitoring & Closing

controlling
process
process group group

Direct
and
Manage
Project
Execution

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Monitor
and
Control
Project
Work
Perform
Integrated
Change
Control

Close
Project
or
Phase

20

Develop charter
The process of developing a document that
formally authorizes a project or a phase and
documenting initial requirements that satisfy
the stakeholder's needs and expectations.

(A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project
Management Institute, Inc. All Rights Reserved. Figure 4-2 Page 66.)
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Important ITTOs
Facilitation techniques
Project charter

22

Facilitation
techniques
Brainstorming, conflict resolution, problem
solving, and meeting management are key
techniques used by facilitators to help teams
and individuals achieve agreement to
accomplish project activities.

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Project charter
It comprises of:

Project purpose or justification,

Measurable project objectives and related success criteria,
High-level requirements, level project description and
boundaries
Assumptions and constraints,
High-level risks,
Summary milestone, schedule, budget,
Project approval requirements (i.e., what constitutes project
success, who decides the project is successful, and who signs
off on the project),
Assigned project manager, responsibility, and authority level,
and
Name and authority of the sponsor.
24

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Develop project
management plan
The process of documenting the actions
necessary to define, prepare, integrate, and co-
ordinate all subsidiary plans and baselines.

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
Institute, Inc. All Rights Reserved. Figure 4-3 Page 72.
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Important ITTOs
Facilitation techniques
Projectmanagement plan

26

Facilitation
techniques
Brainstorming, conflict resolution, problem
solving, and meeting management are key
techniques used by facilitators to help teams
and individuals achieve agreement to
accomplish project activities.

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Project management
plan

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
28
Institute, Inc. All Rights Reserved. Table 4-1 Page 78.
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Project management
plan
Project management plan comprises of:
Project baseline:
scope baseline,
schedule baseline, and
cost baseline
Subsidiary management plan (next slide)

29

Project management
plan
No.

Subsidiary management plan

1
Requirement management plan
2
Scope management plan
3
Schedule management plan
4
Cost management plan
5
Quality management plan
6
Process improvement plan
7
Human resource management plan
8
Communications management plan
9
Procurement management plan
10
Stakeholder management plan
11
Risk management plan
12
Change management plan
13
Configuration management
plan
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Knowledge area
Scope
Time
Cost
Quality
HR
Communications
Procurement
Stakeholder
Risk
Integration

30

Direct and manage

project execution
The process of leading and performing the
work defined in the project management plan
and implementing approved changes to
achieve the projects objectives.

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
Institute, Inc. All Rights Reserved. Figure 4-6 Page 79.
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Important ITTOs
Project management information system
(PMIS)
Deliverables

32

PMIS
PMIS is part of the environmental factors.
PMIS provides access to tools, such as a
scheduling tool, a work authorization system, a
configuration management system, an
information collection and distribution system,
or interfaces to other online automated systems.
Automated gathering and reporting on key
performance indicators (KPI) can be part of this
system.
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Deliverables
A deliverable is any unique and verifiable
product, result or capability to perform a
service that is required to be produced to
complete a process, phase, or project.
Deliverables are typically tangible components
completed to meet the project objectives and
can include elements of the project
management plan.
34

Monitor and control

project work
The process of tracking, reviewing, and
re p o r t i n g t h e p ro g re s s to m e et t h e
performance objectives defined in the project
management plan.

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
Institute, Inc. All Rights Reserved. Figure 4-8 Page 86.
35
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Perform integrated
change control
The process of reviewing all change requests;
approving changes and managing changes.

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
Institute, Inc. All Rights Reserved. Figure 4-10 Page 94.
36
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Important ITTOs
Change requests
Change log

37

Change management
Step 1: submit change request
Step 2: PM consider to accept or reject or
transfer to Change Control Board (CCB) for
further review
Step 3: CCB is responsible for meeting and
reviewing the change requests and approving,
rejecting, or other disposition of those
changes.
38

Change request

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Change log

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Close project
or phase
The process of finalizing all activities across all
of the Project Management Process Groups to
formally complete the project or phase.

A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK Guide) 2013 Project Management
Institute, Inc. All Rights Reserved. Figure 4-12 Page 100.
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41

Summary
The key role of the project manager, project
team, project sponsor, project coordinator and
project expediter
Project selection methods: NPV, IRR, PP, ROI
Term: opportunity cost, sunk cost, depreciation.
Key outputs in this knowledge area: charter, PM
plan, deliverables, approved CR.
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42