As the newly appointed head of the travel and hotel support operations strategic unit of this company, I have thoroughly schemed through these units activities and would like to present my suggestions on some of the changes that need to be made in the company’s operational activities. My role as the head of the operations strategic unit is to manage the product portfolio of this unit. The operations unit is responsible for providing all the services offered by this company to its various clients. I have scrutinized my area of control and have come up with a concrete proposal of the various changes that are needed in this strategic unit. I’m well aware that the company’s operations strategic unit has not been keen on an organized portfolio management process. I believe that there is an urgent need to have a concrete multi-project management process if this unit is to achieve its set target of making this company, the hotel and travel support provider of choice in the state of Florida.
After reviewing past records, it has come to my attention that the firm derives more revenue from the cruise ship business when compared to the hotel industry. In my opinion, I think it is imperative for this company to concentrate more efforts on improving its service delivery in this sector (Ginger). The firm should seek to expand its operations to cover more geographical regions that seem promising in terms of profits. I have realized that investing heavily in areas where the company seems strong, will yield good results and translate to fulfilling the mission and vision of this company. We are living in tough economic times and if this company is to make any meaningful breakthrough in the Hotel and travel support industry, some drastic measures have to be put in place. The company has realized that in order to stay afloat amid stiff competition and rough economic tides, it would be imperative to cut costs while perusing an expansion plan at the same time. Expanding to other untapped markets would be a sure way of achieving the company’s long term goals of expansion and growth (Simon).
In this report I have developed a well crafted proposal of a multi-project management process. I have given an overview of the project’s portfolio process to come up with the most optimal and profitable sets of projects that will help realize the set goals of expansion and cost minimization. In this proposal, I have given a detailed description of the proposed portfolio process. A description of the proposed criteria for selecting the various projects included in the optimal portfolio has been outlined. In addition, various methods employed in selecting the project i.e. the payback period method, Net present value and cost benefit analysis have been discussed (Simon). Balance score card has been used in scoring the various projects in the optimal portfolio to check their abilities to fulfill the ultimate organizational goals and mission.
As a Strategic business unit manager, I need to set a firm strategic foundation for my unit. This will assist in achieving the entire firm’s goals and objectives. Furthermore, portfolio management process requires maximum use of strategic business units in various relevant areas of operation (Ginger).
Proposed multi-project Portfolio management process
Today, Progressive oriented project portfolio selection constitutes an important part of decision making in many organizations. This process is very important for various company operations such as new systems, product and in research and development. Most of the portfolio selection processes take place at the Strategic business unit level. Project portfolio selection involves more than just scoring projects. The process usually has three very important phases. These phases include: strategic phase, individual phase and finally the portfolio selection phase. In this report, I have concentrated on the process of portfolio selection at the Strategic business unit level and at the project portfolio level.
Strategy development stage
Project portfolio management process can be termed as a strategic prioritization method used in the analysis and management of proposed or underway projects within an organization. Project portfolio management process seeks to come up with the best group and order of projects that will help to achieve the organization’s goals. When a firm is lacking a good doze of project portfolio management some symptoms are obvious. The lack of prioritization for business requests, overworked and unappreciated workforce, lack of accountability in projects success and the benefits of a project not being captured are some of the key symptoms I have diagnosed in my area of operation.
There exists several project selection methods among them: Cost benefit analysis, project scoring, discounted cash flows, the economic model, present value and many more. These methods allow one to compare two or more projects in order to rank them before choosing the profitable ones (Ginger).
The company has six possible projects that could be undertaken. However, the amount of resources available does not permit the execution of all the projects at once and hence there is a need for prioritization. As the head of operations, I am charged with the task of determining the best project portfolio comprising of a group of projects that may be considered the best bet for the company to investment in. The six possible projects have been analyzed with regards to the nature, expected returns, costs and scale of preference i.e. opportunity cost.
The first project dubbed call centre, seeks to create a customer complain centre geared to better address customer complaints. The set call centre is meant to reduce customer care response time by 75%. It will cost the company $ 8.5 million that will be paid in a 2 quarter basis for one year. New employees are to be hired at a cost of $40,000 per year.
The second project: Ordering upgrade aims at replacing the current outdated order processing software since orders take too long to process under the current old software. The upgrading exercise is to cost about $2.5 million as a onetime payment. The new technology will reduce the number of workers in the processing department by seven people from the current fifteen. Order processing time will be cut by half with each worker in the department taking home $ 35 000 per Annum.
Project Rocky seeks to serve as a cruise ship to Alaska, a market that the company is yet to exploit. Rocky project demands the acquisition of property in Alaska and the employment of members of staff who will work there. The project seems like a valuable investment for the company. The entire project’s Net present value is $ 19 million over a period of five years. The project’s initial outlay stands at $ 13million with further $ 400 000 per annum operational costs. The initial investment is to be spread out over four years. The payback period for this project is two years. Most of the work for this project is to be outsourced. Management of this project is going to be difficult due to the outsourced work.
Project Europa hunts for a service cruise that will serve the European market. In the present circumstance, the firm does not offer cruise services to Europe. The firm will need to purchase a property in Italy and some employ staff. The existing government expenditure plan might interfere with this project. Nevertheless, this project is perceived to be a cash cow for the company since it has a Net present value of $15 million over a period of seven years. Its initial outlay is $ 11 million with a $ 500 000 operational cost. The payback period, the time the firm is expected to recover the full initial costs invested is 3 years. The company will have to outsource most of the work in this project rendering the project difficult to manage.
Another project branded robot seeks to automate the company’s operations in St Petersburg. Such a project effort will reduce the number of working staff by 35 persons. This will lead to a cost savings of $ 1,575,000 per annum; being the cost incurred to hire the 35 workers. The automation will cost the company $ 17 million spread over one year. This project will disrupt operation at this facility for a period of 3 months. The new facility will save 1/3 of the previously occupied space which will be used for warehousing. This space can be sublet at a fee of $ 2 million per annum. Most of the project work would be outsourced.
The last option is project Tableware, a cruise project where the company seeks to expand its operations to more than just dealing with linen. Much of the table ware in the cruise industry has been destroyed through breakage and thus this is a good opportunity for the company to sell. The cruise’s current suppliers are small time companies that are not a serious threat to the company. The project will necessitate a just in time process in order to supply the cruise ships adequately. The projects will need a minimal warehouse space. The project requires an investment of $ 5.5 million and has an NPV of $ 1 million spread over five years. Initial cost could be spread over two quarters in the future. The payback period is 4 years with an annual operational cost of $ 300 000. All work has to be outsourced.
Methodology creation /optimal portfolio selection stage
Proposed portfolio selection criteria
The firm aims to expand its operations while minimizing its costs.
In this criterion, projects are prioritized in accordance to their ability to achieve the company’s goal of seeking expansion while keeping its cost at the lowest possible levels. Under this criterion, project Tableware conforms to the company’s growth and expansion goal (Ginger). The project seeks to expand the company’s operation to produce other tableware products. The fact that most of the tableware used in the cruise has been destroyed presents the company with a good opportunity to earn profit from this industry. The existing cruise suppliers are small companies that are not much of a threat as far as competition goes. Although the project will require the introduction of a just in time inventory process, it require minimal warehouse space which could be provided if this project is undertaken together with Project robot which spares warehouse space after the automation process commences.
Project robot should be the second priority to consider in this category. This project that seeks to automate the company operations in St Petersburg amounts to huge cost savings to the company. After the automation process which will only cost $ 17 million, the workforce will be reduced by 35 individuals who demand a salary of 1,575,000 indefinitely. Considering that the firm is operating in a tough economic environment, this is a very viable project to undertake. Although this project will disrupt operations for three months, it will free warehouse space that can be used by project tableware
Project Rocky is consistent with the company’s expansion and cost saving strategy. In comparison to project Europa, project Rocky has a better cost benefit analysis. The project has a net present value of $ 19 million that will be spread over a period of five years. The project demands a capital investment of $ 13 million dollars and an operational cost of $400,000 per annum. On the contrary, project Europa has a net present value of $ 15 million, with an initial cost of $ 11 million and an operational cost of $ 500 000. Project rocky has a two year payback period while project Europa has a 3 year payback period. The remaining two projects are excluded from this portfolio. The ordering upgrade project would cost the company 2.5 million paid in a single phase plus an additional 35000 worker’s salary. On the other hand, the call center project would cost the firm 8.5 paid semi annually plus a $ 40 000 per annum hiring cost (Hoboken). The reason for exempting these two is that the two projects are not cost conscious as compared to the benefits they bring to the company. In addition, the two projects do not seek to expand the company’s operations.
Financial analysis criteria
As far as the financial criteria is concerned, project Rocky ranks at the top. Based on the projects Net present value, Rocky has the highest figure when compared to Robot and the other projects. Project rocky’s net present value stands at $ 19 million, Robot’s at $ 17 million and lastly Europa at $ 15 million. In financial analysis a higher net present value is desirable over a lower one. Project Rocky has a positive and higher net present value figure and thus consistent with the Strategic unit’s financial goal.
With regards to the payback period, project call centre is the first to go into the portfolio since it has the shortest payback time of one year. Project rocky has a payback period of two years hence ranks second in this portfolio. Tableware comes third in this category with a payback period of four years. The last project in this portfolio is Europa which has a payback of seven years
Project call centre
Ordering upgrade project
Considering the 24 million dollars resource limitation, the first viable project that qualifies for implementation is the ordering upgrade project. The project demands a onetime payment of $ 2.5 million which is below the $ 6 million dollar limit to be spent in any given quarter. The next project to invest in would be the tableware project. This project demands an investment of $5.5 million with a payback period of four years. Operational costs stand at $300 000 per annum and thus falls within the allocated budget. The remaining $ 16 million can be invested in project Europa. This project seeks to expand the operational area of business to include the European market. The project has a positive NPV of $ 15 million and a short payback period of 3 years.
Project portfolio management is a complex area in an organization. It forms the backbone of strategic decisions made by top level managers. The ability to invest wisely in meaningful, cost saving and profitable investments, bridges the gap between successful and failing companies (Hoboken). A well executed project portfolio management process should add value to a company rather than worsen its current situation. Strategic business units are the best points from where the company should execute their strategic decisions. This is because strategic units function as smaller independent businesses within the main companies. They make their own decisions, commission for their own projects and have distinct external competitors.
Project Portfolio Management: A View from the Management Trenches. Hoboken, N.J: Wiley, 2009. Print.
Moore, Simon. Strategic Project Portfolio Management: Enabling a Productive Organization. Hoboken, N.J: Wiley, 2010. Print.
Rad, Parviz F, and Ginger Levin. Project Portfolio Management Tools and Techniques. New York: IIL Pub, 2006. Internet resource.