Defining Project Scope Management

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Project scope management, according to the PMBOK, constitutes 'the processes to ensure that the project includes all of the work required, and only the work required, to complete the project successfully.' Project scope management has several purposes:

• It defines what work is needed to complete the project objectives

• It determines what is included in the project

• It serves as a guide to determine what work is not needed to complete the project objectives

• It serves as a point of reference for what is not included in the project

So what is a project scope? A project scope is a description of the work required to deliver the product of a project. The project scope defines what work will, and will not, be included in the project work. A project scope guides the project manager on decisions to add, change, or remove the work of the project.

Project Scope vs. Product Scope

Project scope and product scope are different entities. A project scope deals with the required work to create the project deliverables. For instance, a project to create a new barn would focus only on the required work to complete the barn with the specific attributes, features, and characteristics called for by the project plan. The scope of the project is specific to the work required to complete the project objectives.

A product scope, on the other hand, is the attributes and characteristics of the deliverables the project is creating. As in the preceding barn project, the product scope would define the features and attributes of the barn. In this instance, the project to create a barn would not include creating a flower garden, a wading pool, and the installation of a fence. There would be very specific requirements regarding the features and characteristics of the barn: the materials to be used, the dimensions of the different rooms and stalls, the expected weight the hayloft should carry, electrical requirements, and more.

The project scope and the product scope are bound to each other. The product scope constitutes the characteristics and features of the product that the project creates. The end result of the project is measured against the requirements for that product. The project scope is the required work to deliver the product. Throughout the project execution, the work is measured against the project plan to verify that the project is on track to fulfill the product scope. The product scope is measured against requirements, while the project scope is measured against the project plan.

Exam Watch

When it comes to project scope management, as in the bulk of this chapter, focus on the required work to complete the project according to the project plan. The product scope, meanwhile, is specific to the deliverable of the project. Just remember, the exam will focus on project scope management.

Initiating the Project

Initiation is the process to authorize a new project to begin. In addition, initiation can be the process to determine if a project should advance to the next phase of the project life cycle. In Chapter 2, we spent a good deal of time discussing the Initiation processes. Recall that initiation centers on two themes: determination of projects and authorization.

In many organizations, a formal determination process establishes the need for the project. This formal process can include the initial needs assessment, the feasibility study, a preliminary project plan, and so on. In other organizations, the determination process is more informal and is based on the project objectives: internal work orders, Add/Move/Change projects, and other conditions. In either case, there is some method of securing the needed resources and authority to move forward into the project management life cycle.

For a project to become authorized, formally or informally, management must recognize the need (or the perception of the need) and determine how to respond. The response can be yes, move forward with the project; no, the project is not authorized; or, the need may exist but additional information is needed to make a decision.

The need and authorization for projects, regardless of the selection methods, can come from one or more sources:

• Marketplace opportunity A demand in the marketplace calls for the performing organization to meet the need in order to realize new profits.

• Business need The project is created to grow the business, support the organization's vision, or to create a new product or service in a commercial venture.

• Customers The performing organization's customers have requested the project to create a new product or service.

• Advances in technology New technology has surpassed current implementations. The benefits of the new technology are valued.

• Legal New laws or mandates require organizations to change their practices, adjust to safety requirements, provide additional services, and so on.

• Social A project may be created to resolve a problem within a community or culture based on identified needs.

Examining the Product Description

For a project to be authorized, there must be some consensus among the stakeholders regarding what the project is to accomplish. The product description details the product the project will create. The product description will generally be vague in the early portions of the project and become more detailed as the project moves towards a solution. As the project moves forward, it passes through progressive elaboration. Progressive elaboration is the process of allowing the project to evolve and the project characteristics to come into focus based on the needs of the stakeholders and the feasible solution.

Here's a simple example: CDRX, a CD duplication company, has a CD duplicator machine that is not keeping up with the demands of customers. Orders for CDs are causing the duplicator equipment to process orders on two shifts-and jobs are still backlogged. A new project is created to find a solution for the problem. The initial product description addresses the issue with the duplicator machine. The objective of the project is to solve the backlogged problem so customers won't take their orders to the competition. A competing objective is to determine if the new demand is short-term or long-term. If the demand is short-term, then a solution is needed to address the immediate problem. If the demand is long term, then a solution is needed to address the new opportunities.

In the preceding example, the project is to address the problem of the backlogged orders. The project will, through research, stakeholder interviews, and analysis of the organization's work, pass through progressive elaboration. Through root cause analysis, the project objective is now to add an additional, faster duplicator to the manufacturing process. With this direction, the project will pass through additional refinements until the exact vision for the project exists. The product description is a document to provide recognition to the original need for the project to exist.

Considering Client-Vendor Relationships

When it comes to organizations, such as consultants, integrators, architectural firms, and more, that perform projects for other entities, the product description is provided by the buyer. The product description, from the buyer, may not be a formal document, but a conversation or informal document of what the final product should be. The vendor should document and create the product description for several reasons:

• It confirms that the buyer and the seller are in agreement regarding the project's purpose.

• It allows the seller to guide progressive elaboration.

• It allows the buyer to refine the product description.

• It provides accurate communications between the buyer and the seller.

• It provides clear input to scope planning processes.

Working with Strategic Plans

All projects should 'fit' within the performing organization. Specifically, all projects should map to the strategic plans of the performing organization. For example, an organization that creates packaging supplies for a food manufacturer has a very specific market. The packing supplier focuses on food manufacturers and their need for labels, shrink-wrap, food containers, boxes, and other food-packaging products. It would most likely not be within the packaging supplier's strategic plan to begin manufacturing and packaging their own food products.

The strategic plan of the performing organization focuses on the reason the business, community, or not-for-profit group is in existence. Projects that don't support the strategic plan of an organization are not likely to be selected-or be successful if they do manage to get initiated.

Examining the Project Selection Criteria

Meet Tracy. Tracy has a great project she'd like to see authorized. She has to 'sell' the project to management in order to have it authorized. She needs to determine what's so great about her project-and why management should buy into it. She is looking for project selection criteria-reasons why her project should be authorized. Possible considerations Tracy can include:

• Return on investment

• Realized opportunities

• Market share

• Customer perspective

• Demand for the product

• Social needs

• Increased revenues

• Reduced costs

Historical Information

Has anyone ever done something like this before? Historical information provides proven documentation of the success or failure of performance, and can be referenced for project selection criteria. For instance: Has management squelched similar projects for specific reasons? Historical information can be referenced for similar projects and how they performed through execution, as well as how the deliverables of the project performed according to prediction.

In addition, historical information is one of the key elements to determining if an existing project should move forward into the next project phase. If the completed project phase has proven successful, and provided some merit or value, it's likely to move forward. Projects that don't prove valuable-based on the performance of the phase or less-than-desirable phase results-will likely be axed.

Considering the Initiation Tools and Techniques

Projects get initiated, authorized, and then the real work begins. As you know, project initiation can be formal or informal depending on the organization, and the type and size of the project. Project initiation boils down to selecting projects-and then authorizing those projects to begin.

Selecting Projects

When it comes to management selecting projects, the 'attractiveness' of the project to the project owner is a weighty factor. The attractiveness can be measured through proven worth, suspected worth, and the level of uncertainty within the project. When a potential project is evaluated, the project owner, customer, or management wants to reduce business risk-specifically the risk of project failure-which could result in lost monies, lost customers, lost time, fines, inconvenience, and more. Projects with many variables carry more business risk than projects with few variables.

Project selection methods are about resolving the unknown, predicting the likelihood of project success, and the expected value of that project's success-or the cost of its failure. The process of selecting projects to keep and selecting projects to discard is based on two different methods.

• Benefit measurement methods

• Constrained optimization methods

On the Job 

Project selection is also known as Go/No Go decision-making. Projects with many variables are excellent candidates for phase gates. The project is allowed a Go decision to the end of the first phase. Another Go/No Go decision happens at the end of each phase based on the performance and deliverables.

Examining Benefit Measurement Methods

There are several different benefit measurement methods. These methods are all about comparing values of one project against the values of another. As you might expect, the projects with higher, positive values typically get selected over projects with low values. Here are some common benefit measurement methods you may encounter:

Murder Boards

Murder boards are committees full of folks that ask every conceivable negative question about the proposed project. Their goal is to expose strengths and weakness of the project-and kill the project if it's deemed worthless for the organization to commit to. Not a pleasant decision-making process.

Scoring Models

Scoring models (sometimes called weighted scoring models) are models that use a common set of values for all of the projects up for selection. For example, values can be profitability, complexity, customer demand, and so on. Each of these values has a weight assigned to them-values of high importance have a high weight, while values of lesser importance have a lesser weight. The projects are measured against these values and assigned scores by how well they match to the predefined values. The projects with high scores take priority over projects will lesser scores. Figure 5-1 demonstrates the scoring model.

Figure 5-1: The weighted model bases project selection on predefined values.

Benefit/Cost Ratios

Just like they sound, benefit/cost ratio (BCR) models examine the cost-to-benefit ratio. For example, a typical measure is the cost to complete the project, the cost of ongoing operations of the project product, compared against the expected benefits of the project. For example, consider a project that will cost $575,000 to create a new product, market the product, and provide ongoing support for the product for one year. The expected gross return on the product, however, is $980,000 in year one. The benefit of completing the project is greater than the cost to create the product.

Payback Period

How long does it take the project to 'pay back' the costs of the project? For example, the AXZ Project will cost the organization $500,000 to create over five years. The expected cash inflow (income) on the project deliverable, however, is $40,000 per quarter. From here it's simple math: 500,000 divided by $40,000 is 12.5 quarters, or a little over three years to recoup the expenses.

Exam Watch

BCR statements can be written as ratios. For example, a BCR of 3:2 has three benefits to two costs-a good choice. A BCR of 1:3, however, is not a good choice. Pay special attention to which side of the ratio represents the cost; it should not be more than the benefit to be selected.

This selection method, while one of the simplest, is also the weakest. Why? The cash inflows are not discounted against the time to begin creating the cash. This is the time value of money. The $40,000 per quarter five years from now is worth less than $40,000 in your pocket today. Remember when sodas were a nickel? It's the same idea-the soda hasn't gotten better, the nickel is just worth less today than it was way back then.

Considering the Discounted Cash Flow

Discounted cash flow accounts for the time value of money. If you were to borrow $100,000 for five years from your uncle you'd be paying interest on the money, yes? (If not, you've got a great uncle.) If the $100,000 were invested for five years and managed to earn a whopping six percent interest per year, compounded annually it'd be worth $133,822.60 at the end of five years. This is the future value of the money in today's terms.

The magic formula for future value is FV = PV (1 + I)ⁿ, where:

• FV is future value

• PV is present value

• I is the interest rate

• N is the number of time periods (years, quarters, and so on)

• Here's the formula with the $100,000 in action:

  FV = 100,000(1 + .06)⁵

  FV = 100,000(1.338226)

  FV = 133,822.60

The future value of the $100,000 five years from now is worth $133,822.60 today. So how does that help? Now we've got to calculate the discounted cash flow across all of the projects up for selection. The discounted cash flow is really just the inverse of the preceding formula. We're looking for the present value of future cash flows: PV = FV÷(1 + I)ⁿ

In other words, if a project says it'll be earning the organization $160,000 per year in five years, that's great, but what's $160,000 five years from now really worth today? This puts the amount of the cash flow in perspective with what the projections are in today's money. Let's plug it into the formula and find out (assuming the interest rate is still six percent):

1. PV = FV÷(1 + I)ⁿ

2. PV = 160,000÷(1.338226)

3. PV = $119,561

So… $160,000 in five years is really only worth $119,561 today. If we had four different projects of varying time to completion, cost, and project cash inflows at completion we'd calculate the present value, and choose the project with the best PV as it'll likely be the best investment for the organization.

Calculating the Net Present Value

The net present value (NPV) is a somewhat complicated formula, but allows a more precise prediction of project value than the lump sum approach found with the PV formula. NPV evaluates the monies returned on a project for each time period the project lasts. In other words, a project may last five years, but there may be a return of investment in each of the five years the project is in existence, not just at the end of the project.

Exam Watch

You should be able to look at the PV of two proposed projects and make a decision as to which one should be green-lighted. The project with the highest PV is the best choice if that's the only factor you're presented with.

For example, a retail company may be upgrading the facilities at each of their stores to make shopping and purchasing easier for their customers. The company has 1000 stores. As each store makes the conversion to the new facility design, the project deliverables will begin, hopefully, generating cash flow as a result of the project deliverables. (Uh, we specifically want cash inflow from the new stores, not cash outflow. That's some nerdy accounting humor.) The project can begin earning money when the first store is completed with the conversion to the new facilities. The faster the project can be completed, the sooner the organization will see a complete return on their investment.

Here's how the NPV formula works:

1. Calculate the project's cash flow for time unit (typically quarters or years).

2. Calculate each time unit total into present value.

3. Sum the present value of each time unit.

4. Subtract the investment for the project.

5. Take two aspirins.

6. Examine the NPV value. An NPV greater than one is good and the project should be approved. An NPV less than one is bad and the project should be rejected.

When comparing two projects, the project with the greater NPV is typically better, though projects with high returns (PV) early in the project are better than those with low returns early in the project. Here's an example of an NPV calculation:

Time Period	Cash Flow	Present Value
1	15,000.00	14,150.94
2	25,000.00	22,249.91
3	17,000.00	14,273.53
4	25,000.00	19,802.34
5	18,000.00	13,450.65
Totals	$100,000.00	83,927.37
Investment		78,000.00
NPV		$5,927.37

On the Job 

The CD accompanying this book contains an Excel spreadsheet called 'Project Selection Formulas.' This spreadsheet has formulas to walk you through the formulas for present value, future value, and the net present value.

Considering the Internal Rate of Return

The last benefit measurement method is the internal rate of return (IRR). The IRR is a complex formula to calculate when the present value of the cash inflow equals the original investment. Don't get too lost in this formula-it's a tricky business and you won't need to know how to calculate the IRR for the exam. You will need to know, however, that when comparing multiple projects' IRRs, projects with high IRRs are better choices than projects with low IRRs. This makes sense. Would you like an investment with a high rate of return or a lower rate of return?

Examining Constrained Optimization Methods

Constrained optimization methods are complex mathematical formulas and algorithms that are used to predict the success of projects, the variables within projects, and tendencies to move forward with selected project investments. For the exam, thankfully all you need to know about these selection methods are that they are not typically used for most projects, but large, complex projects. Here are the major constrained optimization methods:

• Linear programming

• Nonlinear programming

• Integer algorithms

• Dynamic programming

• Multiobjective programming

Relying on Expert Judgment

Have you ever heard the expression 'To be successful surround yourself with smarter people'? That's the idea of expert judgment. When it comes to project selection, another tool management (and the project manager throughout the project) can rely on is expert judgment. Expert judgment is referenced over and over as a tool and technique in the PMBOK. So, what is it? Expert judgment is a technique to rely on the experts within your organization, consultants, stakeholders (including the project customers), professional associations, or industry groups for advice. These experts can contribute to the project selection method by offering their opinion, research, and experience.

Examining the Outputs of the Initiation

The potential project has moved through the initiation process, passed through the project selection methods, and has been deemed worthy to become an official project. The outputs of the initiation process will serve as inputs to many downstream processes. Let's examine the specifics of what the outputs are.

Examining the Project Charter

The project charter is an output of the initiation processes and serves as an input to scope planning. The project charter, as you know by now, authorizes the project. Projects, as far as the PMP exam goes, do not exist without a project charter. In some instances, however, a contract can serve as the project charter. As a quick review, here are some exam essentials you should know about the project charter:

• The project charter names the project and provides a description of the product.

• The project charter names the project manager and assigns the project manager a level of authority for managing resources, finances, and decisions on the project.

• The project charter details the business case of the project. The business case identifies the business need behind the project, and establishes why the project has been created.

• The project charter provides detailed product description. This is a description of the desired future state the project will create.

• The project charter is signed and approved by a member of management that has the proper authority to ascertain the needed resources and charge the project manager with the management duties. The person signing the charter is high enough in the organization to be considered 'over' the project team members and functional managers.

• The project charter should be written so as not to require change as the project progresses.

Recognizing the Project Manager

An output of the initiation processes is to identify the project manager. This is evident through the project charter, but, according to the PMBOK, the project manager should be named as early as possible in the project process. If you cannot have a project with a charter, then the project manager cannot be named until the charter is written-a classic 'Catch-22' scenario. For the exam, know that the project manager is identified by the project charter, must be identified before project plan execution begins, and hopefully be identified before much project planning begins.

Identifying the Project Constraints

You've seen project constraints already: time, cost, and scope. Constraints can come from contracts, social conditions, and stakeholder requests, all of which contribute to conditions placed upon time, cost, and scope. Generally speaking, it's easier to get more time than money. Stakeholders and the project team identify constraints.

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