Concepts
Applying Project Management Professional (PMP) principles promotes a deeper understanding of value realization in projects and facilitates the maximization of generated value.
First, we need to understand what business value is.
It is a concept that encompasses everything a company does to create long-term health and well-being. The business value can incorporate various elements like monetary value, strategic value, tactical efficiency, social responsibility or customer satisfaction. A project’s real value is characterized as the benefits it delivers against the cost of developing and delivering those benefits.
1. Initiation Phase
In the initiation phase, project managers need to determine the potential value of the project. They should use Value Benefit Analysis (VBA) or Cost-Benefit Analysis (CBA) for this purpose. A VBA can help project managers to quantify the potential benefits and compare them with the costs.
| Cost Benefit Analysis | Value Benefit Analysis |
|---|---|
| 1. It compares the cost and benefits | 1. It quantifies potential benefits |
| 2. It helps in making decisions based on monetary terms | 2. Helps in making decisions taking into account intangible benefits |
2. Planning Phase
- Value Management Approach: At this stage, project managers should construct a Value Management (VM) approach to ensure the project will deliver the expected outcomes and benefits. This VM should include the strategic benefits expected, KPI to measure project success, and the timeline to achieve them.
- Work Breakdown Structure (WBS): The value can be closely watched by developing an accurate WBS. If the work estimation and resources allocation are not accurate, the cost of the project can spike, consequently diminishing the project value.
3. Execution Phase
In the execution phase, project managers need to utilize Earned Value Management (EVM) to measure project performance and progress in an objective manner.
| EVM Metrics | Explanation |
|---|---|
| Planned Value (PV) | What the project should have achieved at a certain time |
| Earned Value (EV) | What the project has actually achieved |
| Actual Cost (AC) | What the project has actually cost |
4. Monitoring and Controlling Phase
In this phase, project managers need to visit their initial assumptions about value and profitability, and review their Value Management plan. They can also apply Control Earned Value Analysis to measure the project’s performance and adjust strategies accordingly.
5. Closing Phase
In the closing phase, project managers should measure the realized benefits against the planned benefits as indicated in the Value Management plan. If a project does not yield the expected returns or benefits, it is essential to ascertain the reasons why and learn from them for future projects.
In conclusion, determining the project’s value at each stage is essential for the success of a project. Tools such as VBA, CBA, EVM, and VM are important aids in assessing value throughout the project and ensuring it stays on track. By leveraging these Project Management Professional (PMP) approaches, project managers can drive value optimization, maintain project efficiency, and achieve strategic objectives.
Answer the Questions in Comment Section
“Project value” includes both tangible and intangible benefits.
- True
- False
Answer: True
Explanation: Project value encompasses all the tangible (financial profits, market share, etc.) and intangible (brand image, customer satisfaction, etc.) benefits achieved by carrying out a project.
Cost is the only metric to determine a project’s business value.
- True
- False
Answer: False
Explanation: The project’s business value is determined by numerous factors beyond cost, including time, scope, quality, and benefits realized.
To measure the business value of a project, project managers use a specific tool called:
- Pareto Analysis
- Value Analysis
- Earned Value Management (EVM)
- SWOT Analysis
Answer: Earned Value Management (EVM)
Explanation: EVM is a widely recognized project management tool for measuring project performance and progress, and hence, the value delivered.
Maintaining good stakeholder relationships does not contribute to business value.
- True
- False
Answer: False
Explanation: Good stakeholder relationships can lead to smooth project operations, enhancing its value by meeting expectations and realizing benefits.
The only stage where the business value of a project can be examined is:
- At project initiation
- At project execution
- At project closure
- All of the above
Answer: All of the above
Explanation: Business value can and should be examined at all stages of the project, as it can impact decision-making, prioritizing, and strategies.
The concept of business value is only relevant to for-profit organizations.
- True
- False
Answer: False
Explanation: Even non-profit or governmental organizations execute projects aiming to provide value, albeit the measure might not be financial profit.
Customer satisfaction is an integral part of assessing business value.
- True
- False
Answer: True
Explanation: Customer satisfaction can lead to repeat business, positive reputation, and referrals, all contributing to the overall business value.
Risk assessment plays a significant role in determining the potential business value of a project.
- True
- False
Answer: True
Explanation: A proper risk assessment can reveal threatenings to the project’s value and provide opportunities to enhance it.
Elements of ‘triple constraint’ in project management include:
- Cost, Time, Quality
- Time, Cost, Scope
- Quality, Scope, Benefits
- Cost, Benefits, Quality
Answer: Time, Cost, Scope
Explanation: The ‘triple constraint’ refers to the balance between project time, cost, and scope; all these are essential to consider during project value examination.
The business value of a project begins to accrue only after the project is completed.
- True
- False
Answer: False
Explanation: Value begins to accrue as certain project milestones are met or benefits are realized during the project life cycle, not just after completion.
A well-defined project scope contributes to increased business value.
- True
- False
Answer: True
Explanation: A well-defined scope guides teams to work towards clear objectives, thus enhancing the business value by preventing wastage of resources.
Increased project costs directly correlate to increased business value.
- True
- False
Answer: False
Explanation: High costs do not necessarily mean high project value as it depends on how well resources are utilized and the benefits realized.
Great article! Understanding the business value throughout the project is crucial for success.
I agree with you! Monitoring business value ensures that projects align with strategic goals.
I think it’s vital to continually assess business value at every phase of the project lifecycle.
Can anyone share some tools that help in evaluating business value throughout the project?
Excellent post! It’s essential for PMP exams to focus on business value.
Totally, understanding business value can also help mitigate risks early on.
Thanks for this valuable information!
Wonderful insights, much appreciated!