MBH Management Pty Ltd

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MBH Management Pty Ltd

• Business Case and the Project Manager

Contact Details Presenter Mark Heath Office 02
9570 3160 Mobile [phone] Email
m.heath_at_mbh.com.u
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MbP Linking Strategy to Projects
Vision
Strategic Management
Mission
Strategy
Strategy
Strategy
Project
Project
Project
Project
Project
Sub Project
Sub Project
Project Management
Major Task
Major Task
Task
Task
Task
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MbP project selection - WBS
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Business Case

• What is the idea?
• How much will it make?
• Does it align to strategy?
• Do we have capacity?
• Is it risky?

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Business Case

• Business Case
• Objectives
• Feasibility/economics
• Stakeholders identified
• Risks
• Strategy
• Guesstimate of Resources

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Components in PMBoK

• Project functional/cost objectives
• Cost
• Risks
• Strategy for implementation
• Validation of resources

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Components not in PMBoK

• Benefits objective validation and tracking
• Financial validation and tracking
• What drives the value of the project

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Only NPV Option Pricing relevant

• Not a black box
• Measures strategic value
• Incorporates risk
• Creates instant priority process

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Removing the black box

• Understand where ve NPV comes from
• Articulate benefit drivers (EVA)
• Align project to business strategy

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Calculating NPV

• Benefit drivers
• Cost of the project
• Ongoing costs
• WACC
• DCF NPV

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What is strategic value?

• Project must be more than Strategic
• Must add strategic value
• Results in competitive advantage
• Competitive advantage ve NPV
• Competitive advantage strategic value

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How is strategic value achieved?

• Build on existing strengths
• Reduce weaknesses
• Create new businesses
• Create new options/opportunities
• Reduce risk

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Negative NPV project

• Gut feel says yes
• Appears to have competitive advantage
• Time horizon is long
• Possibilities of follow-on investments
• Need to value options

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Option pricing and NPV

• Value option of follow-on investment
• Estimate volatility of forecasts
• Estimate time to investment decision
• Plug into Black-Scholes formula
• Add option value to NPV value
• Positive number means project has value

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The danger of payback

• Short term investment horizons
• The need for EPS growth now
• Forced by investment analysts time horizons
• Investment horizons need to change
• Focus on 10 - 15 years rather than 1 - 3.
• Remove going concern assumption!

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Conclusion

• Project Manager must track benefit drivers of
  objectives
• Understand where the value comes from
• Understand how to put a figure on this value
• Utilise option pricing to value management