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MBH Management Pty Ltd

MBH Management Pty Ltd . Business Case and the Project Manager. Contact Details: Presenter: Mark Heath Office: 02 9570 3160 Mobile: 0402 285 967 Email: m.heath@mbh.com.u. MbP – Linking Strategy to Projects. Vision. Strategic Management. Mission. Strategy. Strategy. Strategy. Project.

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MBH Management Pty Ltd

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  1. MBH Management Pty Ltd Business Case and the Project Manager Contact Details: Presenter: Mark Heath Office: 02 9570 3160 Mobile: 0402 285 967 Email: m.heath@mbh.com.u

  2. 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

  3. Business case writing MbP & project selection - WBS

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

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

  6. Components in PMBoK • Project functional/cost objectives • Cost • Risks • Strategy for implementation • Validation of resources

  7. Components not in PMBoK • Benefits objective validation and tracking • Financial validation and tracking • What drives the value of the project

  8. Only NPV & Option Pricing relevant • Not a black box • Measures strategic value • Incorporates risk • Creates instant priority process

  9. Removing the black box • Understand where +ve NPV comes from • Articulate benefit drivers (EVA) • Align project to business strategy

  10. Calculating NPV • Benefit drivers • Cost of the project • Ongoing costs • WACC • DCF = NPV

  11. 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

  12. How is strategic value achieved? • Build on existing strengths • Reduce weaknesses • Create new businesses • Create new options/opportunities • Reduce risk

  13. 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

  14. 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

  15. 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!

  16. 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

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