PM6 TECH 131 - V3 English Version

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Creating the Project Charter
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Copyright Notice
Copyright 2015 to 2018 by NetCBT, Inc.
“Materials in this class are based on the A Guide to the Project Management Body of
Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc.,
2017.”
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continued evolution of project management standards.
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Table of Contents
Table of Contents
Introduction .............................................................................................................................................. 5
Course Objectives ................................................................................................................................ 12
Project Phases ....................................................................................................................................... 12
Project Life Cycle .................................................................................................................................. 12
Project Management Process Groups ........................................................................................... 12
Initiating Process Group .................................................................................................................... 12
Initiating Group Processes ................................................................................................................ 12
Develop Project Charter .................................................................................................................... 12
Project Charter Development .......................................................................................................... 12
Project Charter Sign Off .................................................................................................................... 12
Project Integration Management.................................................................................................... 12
Develop Project Charter Inputs ...................................................................................................... 18
Business Case Drivers ........................................................................................................................ 18
Business Case Example ..................................................................................................................... 18
Business Case Exercise ...................................................................................................................... 19
Reviewing the Business Case .......................................................................................................... 23
Feasibility Study ................................................................................................................................... 31
Project Selection and Prioritization ............................................................................................... 31
Project Selection Methods ................................................................................................................. 31
Cost-Benefit Analysis .......................................................................................................................... 31
Scoring Models ...................................................................................................................................... 31
Payback Period ...................................................................................................................................... 31
Discounted Cash Flows ...................................................................................................................... 31
Net Present Value................................................................................................................................. 31
Internal Rate of Return ...................................................................................................................... 31
Develop Project Charter Tools and Techniques ........................................................................ 32
Expert Judgment .................................................................................................................................. 44
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Data Gathering ...................................................................................................................................... 44

Interpersonal and Team Skills ........................................................................................................ 44
Meetings................................................................................................................................................... 44
Develop Project Charter Outputs ................................................................................................... 44
Project Charter – In Detail................................................................................................................ 44
Project Charter Exercise .................................................................................................................... 44
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Introduction
The project charter is the first document that is created when starting a
project. The project charter is created during the develop project charter
process. The develop project charter process documents the initial
requirements for the project that satisfy the stakeholder’s needs and
expectations. The project charter is usually written to sell the project and
emphasizes the need for the project. Once approved, the project charter will
formally authorize either the project or a phase of the project to begin.
This course describes how to start a project by defining the develop project
charter process. The inputs will be reviewed with particular emphasis on the
project statement of work (SOW) and the business case. Examples of these
documents will be provided during this course. This course will conclude by
showing a detailed example of the project charter.
Course Objectives
At the end of this course, students will be able to:
• Identify the different phases of a project

• Identify the elements included in the project statement of work
• Recognize the purpose of the business case
• Identify the different project selection methods for selecting a project
• Calculate payback method and Net Present Value for determining
project value
• Identify the elements of the project charter
Course Alignment
This course is aligned with A Guide to the Project Management Body of

Knowledge (PMBOK® Guide) – Sixth Edition.
This course has been registered with the Project Management Institute (PMI)
and provides 4 Technical PDUs for the following PMI certifications: PMP®,
PgMP®.
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Project Phases
Projects do not happen all at once. They are typically divided into phases in
order to more easily plan project activities and control project work. The
phases of a project are often time performed one after another in a non-
overlapping order, called a sequential project phase relationship. The work
performed during each phase is typically unique to that phase. The number
of phases in a project typically depends on the project's complexity and the
industry in which the project is being performed.
Project phases are completed when the deliverables for that phase are
completed. For projects that consist of sequential phases, the end of one
project phase typically marks the beginning of the next phase of the project.
The deliverables are the outputs that must be produced and approved in
order to officially complete that project phase. Project stakeholders will be
responsible for the formal acceptance of the project deliverables. Most
project phases conclude with a review at which time a decision will be made
as to whether the project should move to the next phase or the project
should be terminated. For example, if a phase of a project was to build a
prototype and it did not work as envisioned, a decision might be made to kill
the project instead of moving to the production phase of the project.
The project manager must determine the processes that are appropriate for
effectively managing the project. This is based on the complexity and scope
of the project. As the project progresses, the project management
processes may be revisited or revised to update the project management
plan as more information becomes known. The underlying concept of the
project process groups is that they create an iterative cycle. This cycle is
known as the Plan – Do – Check – Act cycle, also known as the Shewhart
Cycle, which was popularized by Dr. Edward Deming. The results or outputs
from each process in the cycle will become an input to the next process in
the cycle.
The PMBOK® Guide defines the process of going back through the Project
Management Process Groups an “iterative process”. The process groups are
defined as overlapping activities that are performed throughout the project.
The output of one process will be the input of the next process. Each
process may be revisited and revised throughout the project’s life.
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Project Life Cycle
The phases of a project are referred to as the project life cycle. The nature
of the project being performed will usually dictate the exact number of
phases that will exist for a project.
The project life cycle is the term that is used to describe the basic
framework for the phases of a project regardless of the size of the project or
the work involved to complete the project. In most cases, the phases of a
project will be performed sequentially. However, if the project is behind
schedule, the project manager may choose to perform the work of multiple
phases in an overlapping fashion in order to shorten the project schedule.
In most cases, the phases of a project match the following:
• A starting phase where the project or project phase is officially started

• An organizing and preparing phase where the planning takes place
• An executing phase where the work is performed
• A closing phase where the project or project phase is officially ended
Project Management Process Groups
There are five process groups define by the PMBOK® Guide.
The five process groups are:
• Initiating
• Planning
• Executing
• Monitoring and Controlling
• Closing
Project Management Institute, A Guide to the Project Management Body of Knowledge,

(PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page 554.
A process is defined as a group of interrelated activities that are performed

in order to achieve a pre-defined deliverable. This deliverable can be a
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product, a result, or a service. Each of the processes has a deliverable as

the output. There are inputs and various techniques that can be used to
achieve the desired output of the process. The five process groups interact
and overlap with each other. The processes are also iterative which means
they are repeated throughout the project life. This also means that as more
information is learned, the newly learned information will be used to
evaluate the planning that was initially done. This process will continue until
the project concludes.
For example, monitoring the execution of a project may identify a problem

which requires a change request to correct the problem. When reviewing the
change request, it might be discovered that the problem was initially made
in the original planning. This information is documented and can be used in
future projects that are in the planning phase.
In this course, we will be focusing on developing the project charter, which

is a process in the Initiating Process group.
Initiating Process Group
• Initiating
• Planning
• Executing
• Monitoring and Controlling
• Closing

The initiating process group is the first of the five process groups that must
be completed for a project.
The initiating process group occurs at the beginning of the project and may
also occur at the beginning of each project phase for larger projects. The
initiating process acknowledges that the project or the next project phase
should begin. The initial scope is defined and it is the formal
acknowledgment that financial resources are to be committed.
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The initiating process group grants the approval to commit the organization's
resources to working on the project or phase. It is also at this stage that
project stakeholders (both internal and external) will provide feedback and
input to shape the project deliverables.
The initiating phase of the project is also when a project manager is

selected. It is during the initiating process that the project manager will be
authorized to begin working on the project.
Initiating Group Processes
The initiating phase includes the following processes:
• Develop project charter

• Identify project stakeholders

Although the initiating process group is simple with only two processes, it is
a very important process group for all projects.
It is during the initiating phase of the project where the scope of the project
is put in writing. It is at this stage of the project where specific descriptions
and objectives for the project are created and communicated to project
stakeholders. It is also at this stage of the project where the criteria for
evaluating alternatives is also created and documented.
The initiating process also gets stakeholders involved in the project from the
beginning. This will increase the probability of shared ownership in the
project. It will get stakeholders involved early and engaged so when
delivery acceptance is required, there will be a greater likelihood of this
occurring. This should lead to customer satisfaction.
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Develop Project Charter
Develop project charter is the first process in the initiating process group.
Develop project charter is the process of developing a document that
formally authorizes a project or a phase to begin. The develop project
charter process documents the initial requirements for the project that
satisfy the stakeholder’s needs and expectations. The project charter is
usually written to sell the project and emphasizes the need for the project.
Once approved, the project charter will formally authorize either the project
or a phase of the project to begin.
Project Charter Development
The project charter is a document that is written and issued by the project
sponsor. In some organizations, the project charter may be created by
senior management. The project charter is not created by the project
manager or by the project team. The initiator of the project, usually the
project sponsor, provides the information for the project charter. Project
charters will introduce the project to everyone in the organization and
essentially serves as a first glance of the benefits that will be derived from
the project to the organization. A well-written project charter will answer
many of the questions that company executives or project stakeholders will
have regarding the project.
The project charter is a document that sells the project and the need for the
project. It will typically include the following elements:
• The project charter should clearly state the purpose or justification for
the project. In other words, it should clearly state to any company
executive what will happen and why it needs to happen.
• The project charter should support the purpose of the project by
stating the business need for the project.
• The project charter should provide tangible data to support the
business need such as: return on investment, competitive analysis or
industry trends.
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• The project charter should provide a high-level description of the

project or the product to be created when the project is completed.
Here are a couple of examples:
o To install a new singlemode fiber optic backbone to connect all
buildings on the campus together.
o To expand the shipping area to allow the installation of more
shelves and to increase the distance between shelves so forklifts
can be used.
o To create a new mobile app to complete training courses.
o To redesign the corporate website to support a responsive or
mobile friendly design.
• The project charter should define and document the requirements that
must be completed in order to satisfy project stakeholder
expectations. Since a successful project is one that meets or exceeds
the expectations of the project stakeholders, the criteria as to what
will satisfy project stakeholder expectations should be included so
everyone is aware of the bar for success for the project.
• The project charter should identify project stakeholders that are likely
to influence the project and it should document their potential impact
(positive or negative) on the project.
• The project charter should document the required level of participation
from other organizational departments and the projected likely
involvement in the project from each department.
• The project charter should document all project constraints, either
internal or external to project. This would include documenting any
known constraints going into the project. For example, the inability to
work on the project on weekends because of a parking lot renovation,
or a resource limitation.
• The project charter should document all project assumptions.
Assumptions are factors that, for planning purposes, are considered to
be true, real, or certain without proof or demonstration. The project
charter should document these particularly as they impact the
planning on the project. Examples might include assumptions
regarding personnel availability, product availability, product pricing,
etc.
• The project charter should include a preliminary project schedule,
which highlights project milestones. This will provide a rough
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indication of the project schedule, important milestones of the project

and when they will likely occur.
• The project charter should include a preliminary project budget. This
would be a summary budget listing approximate costs for all project
phases.
• The project charter must formally name the project manager and
document their level of authority on the project.
Project Charter Sign Off
The project charter is complete once it has received a formal signoff from
the project sponsor, senior management, and key stakeholders. Signing off
on the project charter indicates that:
• The document has been read by those signing it

• They agree with the contents of the document, and
• They are on board with the project
Project Integration Management
The processes in the project integration management knowledge area are:
• Develop Project Charter

• Develop Project Management plan
• Direct and Manage Project Work
• Manage Project Knowledge
• Monitor and Control Project Work
• Perform Integrate Change Control
• Close Project or Phase

Develop project charter is the first process in the project integration

management knowledge area.
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Project Integration Management is a knowledge area that takes a high level

or an integrated view of a project. This is where changes made to a project
must be integrated into the rest of the project. In fact, the project manager
is the primary integrator on a project. The develop project charter process
is a process that is concerned with making sure that every part of the
project is coordinated from starting the project, to creating the plans, to
executing the project work, to verifying the results of the work and then
closing the project or project phase.
Develop Project Charter Inputs
The inputs for developing the project charter are:
• Business documents
• Agreements
• Enterprise environmental factors
• Organizational process assets

The first input for the develop project charter process is business
documents. Business documents typically include both the business case and
the benefits management plan. The business case articulates the reasoning
for initiating a project or phase of a project. The reasoning is usually
presented in an organized document but may also sometimes come in the
form of a short verbal argument or presentation. The benefits management
plan is a document that should identify the procedure for creating,
maximizing, and sustaining the benefits that will result from the completed
project.
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Business Case
No matter the format, the business case should provide a logical series of
facts for initiating a project. It should illustrate how spending money and
effort will support or improve a specific business need. The logic of the
business case is that, whenever resources such as money or effort are
consumed, they should be in support of a specific business need. An
example would be to develop a software upgrade that would make an
application easier to use. In this case, the "business case" is that an easier
to use application will improve customer satisfaction and reduce overall
customer support costs.
A well-written business case should express both tangible and intangible

benefits of a proposed project. Again, reduced costs (tangible) and increased
customer satisfaction (intangible).
A business case is a crucial project document that will be referenced during

the planning, executing, monitoring and control, and the closing processes of
the project. This is the reason that the project management team must be
involved in the creation of this document. In addition, a business case that
has been created carefully provides useful information to the project
management team. The business case is basically a guide that can be used
for tracking of the project in order to make sure that the project is correctly
aligned with the goals of the project.
Business Case Drivers
What are the typical drivers that influence the business case?
Market demand – this is what the market is requesting, which is all

customers for the company’s products. These can be trends from the
market,or from actual sales data (what is actually being purchased).
Organizational need – the project is dictated by what is needed by the

company. An example of organizational need would be the sales and
marketing department is is looking to implement a mobile app that will
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allow customers to log into their account. This is the business driver
for the project for a mobile app software project.
Customer Request – this is what the company’s customers are

requesting. If our company sells smartphones, our customers might be
asking for phones with larger screens or faster processors. These
customer requests may be told directly to customer service reps,
received from customer emails or from comments on the company
Facebook page.
Technological advance – this is when a new technology is driving a

project. An example is an airline creating e-tickets that can be
displayed by the cell phone and used like a paper ticket. Another
example is when new cabling must be installed because a new CAD
application requires 10 gigabit Ethernet to each desk in the building
and the current cabling will not handle the 10 gigabit Ethernet
technology.
Legal requirement – this is when codes or laws are driving a project.

For example, the FDA might have just passed a new law about product
labeling. If your company is a food manufacturer, because of this new
law, nutritional information must be added to your product packaging.
Ecological impact – there are many green initiatives driving products

these days. It could be driven by the desire to save energy, to use
recycled materials or to conserve resources.
Social need – in this case, you are not being forced to do the project,
but it is the right thing to do.
The second input for the develop project charter process is agreements. An
agreement is a document that identifies the preliminary intentions of a
project. An agreement is typically an input when working with or using an
external contractor or business entity. Agreements state the project
requirements that must be achieved. Agreements can be a contract, a
memorandum of understanding, a letter of agreement or an email. Verbal
agreements can also serve the same purpose.
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The third input for the develop project charter process is enterprise
environmental factors. Enterprise environmental factors are the factors that
are unique to the enterprise or the industry and can include industry
regulations or standards and may even include governmental regulations
that the business is required to conform to. For example, if a company wants
to start a new line of yogurt products, there are all kinds of government
regulations in areas such as the pasteurization of the product and the
packaging of the product. There might also be characteristics of the
organization itself and finally the market for the product or service.
The fourth input for the develop project charter process is organizational
process assets. Organizational process assets that can influence the creation
of the project charter are the organization’s policies, rules or processes that
can affect the project. It includes all historical information from past projects
that can be used when creating the project charter. This would include
performance data as well as risk data from past similar projects. Finally, it
would include all templates, such as a project charter template, that can be
used or must be used when creating the project charter.
Business Case Example
Let’s look at an example of a business case for a new project. My project is

to create a new mobile friendly website with a a responsive design. My
business case should start with an executive summary. However, since this
is a summary of the entire business case, you can save this until last.
Start with the introduction and background of the project. Recent customer
surveys have been showing that over 50 percent of our current customer
base would like to access our company website using their mobile phones
and tablets. For this to happen and to deliver a satisfactory customer
experience, a new website must be designed. The website must support a
responsive design. Responsive design is the ability of the website to
automatically adjust to the size of the device accessing it. A mobile friendly
website will make accessing the website easier by creating touch capabilities
and controls. Survey results show that over 50% of our current customer’s
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want this capability, which indicates that the percentage will only grow in the
future.
Deliverable – Create a new mobile friendly website with a responsive design.
Scope – Code the new site using PHP. Creating new pages for the existing
pages on the site and duplicating the same capabilities. This means that
no new capabilities will be created or added to the website for this project.
Business drivers – earlier we mentioned various drivers for a project. Here

we would want to list customer request as the business driver. We could
also add other business drivers if applicable.
Recommendations/decisions to be taken – Hire 4 contract programmers with

PHP experience to create the new website. My options here were:
1. I could have used existing programmers that are already employed.
But, do they have PHP experience and what are they currently working
on? To use them, I would need to take them away from their current
project.
2. I could hire four new programmers as new employees for the company
then use them for this new project.
3. Hire four contract programmers. These four programmers would not
be employees. They would be hired exclusively for this one project.
Analysis of the decision to be taken – This should show the reasoning behind
each option and explain why the option that was recommended is the
recommended option.
In this case, the recommended option is option number 3, which is to hire

four contract programmers. Hiring four contract programmers will provide
four, dedicated resources for this project. This should allow the project to
achieve project milestones and the projected completion date. These dates
would not be achievable if existing programmers are used. In addition,
hiring new programmers as employees would present an employment
problem once the project was over.
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Financial analysis – if there are any. In this case, we are doing the project
because of “customer request” so the financial metrics should justify the cost
and try to quantify the benefits.
Benefits – The benefits of a mobile friendly website with responsive design

should be listed.
Risks – The risks of the project should be listed here. The risks of not doing
the project can also be listed.
The risks of moving forward with the project might be a website that is
buggy. Non-mobile users will lose what they are familiar with and they will
need to learn a new interface.
The risks of not doing the project are that half our customers are indicating
that they want to access the site with a mobile device may move on to one
of our competitors that have a mobile friendly website.
Description of the project work – Web pages must be created to match the
functionality of the current website.
Required resources – this should list the members of the project team.
Project controls – this should list the controls that will be implemented for
this project including timeframes, budget, and deliverable schedule.
Conclusion – this should be a summary document that stresses the high

points from the details provided in the body of the document.
Finally, if it is not done, the executive summary should be created.
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Business Case Exercise
It is time to stop and apply some of the information from this course in an
exercise. This exercise will take approximately 30 minutes to complete.
This exercise will have you create a business case for a project. I would like
you to pick a project. It can be real or you can just make up a project for
this exercise.
For this project, create the following:

A. Executive summary:
B. Introduction:
C. Deliverables:
D. Scope:
E. Business Drivers:
F. Recommendation / Decision to be taken:
G. Analysis of the decision to be taken
H. Financial Analysis
I. Benefits
J. Risks
K. Description of the project work
L. Required resources
M. Project controls
N. Conclusion
O. Review and approvals
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Business Case Exercise
A. Executive summary:
B. Introduction:
C. Deliverables:
D. Scope:
E. Business Drivers:
F. Recommendation / Decision to be taken:
G. Analysis of the decision to be taken
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H. Financial Analysis
I. Benefits
J. Risks
K. Description of the project work
L. Required resources
M. Project controls
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N. Conclusion
O. Review and approvals
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Reviewing the Business Case
The business case does not disappear once a project is accepted and gets
funded. Or at least is shouldn’t. The business case should remain front and
center during the project. Then, at various stages of the project, the
business case should be reviewed to ensure that:
• The justification referenced in the business case is still valid

• The project will deliver the solution proposed and solve the business
need referenced in the business case
• The business case may also be subject to amendment if the review
concludes that the business need has changed or no longer exists.
The result of a review may be the termination or amendment of the project.

This would be the result of tracking and measuring the project’s progress.
Feasibility Study
Some organizations will require a feasibility study prior to making a final

decision about starting the project and creating a project charter for the
project.
A feasibility study is defined as an evaluation and analysis of the potential or

merits of the proposed project based on investigation and research in order
to support the decision-making process. Feasibility studies seek to
objectively identify the strengths and weaknesses of a proposed project by
highlighting both opportunities and threats. Feasibility studies should also
identify the resources that will be required to complete the project and to
provide an indication of the prospects for success. Therefore, feasibility
studies are undertaken for several reasons. One is to determine whether the
project is a viable project. A second reason is to determine the probability of
the project succeeding.
Feasibility studies can also examine the viability of the product, service, or
result of the project. For example, the study might ask:
• Will a mobile app be used by existing customers?
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• Is a mobile app required to compete in today’s mobile phone-oriented

market?
The feasibility study might also look at the technical issues related to the
project and determine whether the technology proposed is feasible, reliable,
and easily integrated into the organization's existing technology structure.
Project Selection and Prioritization
Most organizations must be selective regarding which projects they are

willing to fund and dedicate resources towards. Selection methods help
organizations decide among alternative projects and determine the tangible
benefits to the company for choosing or not choosing a particular project.
Project selection methods will vary depending on the company, the people
serving on the selection committee, the criteria used, and the project.
Sometimes, the project selection methods will be purely financial and other
times, project selection will be based on other criteria or reasons. For
example, a project may be undertaken for public perception reasons or for
political reasons.
Most organizations have a formal, or at least semi-formal, process for

selecting and prioritizing projects. In larger organizations, a steering
committee is typically responsible for project review, selection, and
prioritization. A steering committee is typically made up of senior managers
who represent each of the functional areas in the organization.
Business cases are written up and presented to the steering committee. The
steering committee will review the proposed projects, and a determination is
made on each project.
The political power of steering committee members in the organization plays

a big part in which projects are selected. Remember that each member of
the steering committee will have some level of authority, political standing,
and their own aspirations for their career in the organization. As a result,
committee members that are better connected politically in the company are
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more likely to get their projects approved or get other projects rejected
because of their political clout.
Once the no-go projects have been weeded out, the remaining projects are
prioritized according to their importance and benefit to the organization. The
projects are added to an official project list, and progress is reported for all
active projects at the regular monthly steering committee meetings.
Even organizations that do not use a steering committee will typically have a
process for accepting or rejecting projects. This process will be based on
some selection criteria that makes sense for the company. They will also
have a method for prioritizing the selected projects based on some criteria.
Project Selection Methods
Project selection methods are concerned with identifying the merits of each
project. The project with the most value will be selected and those with less
merit or value will be rejected. Therefore, project selection methods address
how to identify projects that will benefit the organization the most.
Selection methods can use factors such as: market share, financial benefits,
return on investment, customer retention, and public relations. Most of
these are reflected in the organization's strategic goals. Projects, large or
small, should always be weighed against the organization’s strategic plan.
Those that enhance the organization’s strategic goals should be selected.
There are two categories of project selection methods defined in the PMBOK
guide:
• Mathematical techniques
• Benefit measurement methods
Mathematical techniques use algorithms to evaluate each project.

Techniques include: linear algorithms, dynamic algorithms, nonlinear
algorithms, and multi-objective programming algorithms. Mathematical
models are also known as constrained optimization methods.
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Benefit measurement methods employ various forms of analysis and

comparative approaches to make project decisions. All of the following are
types of benefit measurement methods:
• Cost-Benefit Analysis
• Scoring Models
• Payback period
• Discounted cash flows
• Net Present Value
• Internal Rate of Return
Cost-Benefit Analysis
Cost-benefit analysis (CBA) is a common benefit measurement method. This

method compares the cost to produce the product or service of the project
to the benefit that the organization will receive as a result of executing the
project. A sound project choice is one where the costs to produce the
product or service of the project are less than the financial benefits of the
completed project. This approach should take into account all costs to
produce the product or service.
The cost-benefit analysis is the ratio of benefits to actual costs. The formula
to calculate cost-benefit analysis is:
Expected Return from the project / the cost of the project.
For example, if you expect a new building to cost $1,000,000 to build it,
however, you expect to be able to sell the completed building for
$1,750,000, then, your cost-benefit analysis is equal to:
1,750,000 / 1,000,000 = 1.75 to 1.
In other words, you get $1.75 of benefit for every $1.00 of cost. A ratio
greater than 1 indicates that the benefits that will be received as a result of
doing this project are greater than the costs of the project.
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When considering project costs, you must take into account all project costs
including:
• Architectural costs
• Planning costs
• Permitting costs
• Land costs
• Cost of materials
• Labor costs
• Project management costs
Scoring Models
A scoring model is another technique that is commonly used. This technique

is also known as a weighted scoring model. Selection criteria for the project
are created and then the importance of each criterion is established by the
project selection committee by assigning a weighting value. Important
criteria will be given a higher weighting value than the less important
criteria. Then, each of the selection criteria is ranked using a scale such as 1
to 5, with a higher number being a more important or desirable outcome for
the company. The rating for each selection criteria is multiplied by the
weighting that was assigned to it in order to establish a total weighted score
for each criterion. Finally, all of the weighted scores are added up for each
project. The project with the highest weighted score is selected.
Scoring model example
Criteria Weighting Project A Result Project B Result Project Result

C
Profit 5 5 25 3 15 1 5
Time 4 2 8 4 16 5 20
Required
Resources 4 3 12 5 20 5 20
45 51 45
In the scoring model example, each criterion of - profit, time required and
resources were giving a weighting. Then, the three projects are scored
28
using a 1 to 5 scale for each of the three criteria of - profit, time required to
complete the project and resources required for the project. The assigned
weighting for each criterion is multiplied by the score to determine a
weighted score for each criterion for each project being considered. The
scores are then totaled to determine the overall score for each project.
According to this example, project B should be selected because it has the
highest score of 51.
Payback Period
Projects can be selected based on the amount of time it will take to recoup
the initial cost of producing the product, service or result of the project. This
technique compares the initial investment to the cash inflows expected over
the life of the product, service, or result of the project. For example, if a
project has an initial investment of $1 million with expected cash inflows of
$75,000 per quarter for the first three years, $100,000 per quarter for the
next two years and $150,000 per quarter thereafter, then the payback
period for this project is:
$75,000 * 12 quarters (3 years) = $900,000

$100,000 * 1 quarter = $100,000
So, the payback period is 3 years and 1 quarter to pay back the initial
investment of $1 million. The fact that inflows from the project are
projected to be $150,000 per quarter in year six makes no difference
because the payback period will have been already reached.
The payback period is the least precise of all the cash flow calculation
methods because it does not consider the value of cash flows in later years.
This is known as the time value of money. This concept states that cash
flows in year five are worth less than cash flows that are received today.
29
Discounted Cash Flows
Discounted cash flows is a technique that takes into account the fact that
money received in the future is worth less than money received today. This
calculation can put an exact value on the future value of money. When used
as a technique for selecting projects, it can provide a more accurate
measure of the value of money that will be received from a project in the
future. The formula to calculate the future value of money is based on the
interest rate and duration. The formula is:
FV = PV (1 + i)n
Where, the future value of money is equal to the present value times (1 plus
the interest rate) to the power of n periods. So, what is the future value of
$50,000 in 5 years at an interest rate of 5 percent per year?
To solve this you would need to plug your values into the formula for
calculating future value. It would look like this:
FV = $50,000 , I = 5% or .05 and n = 5 years

FV = $50,000 (1+.05)5
FV = $50,000 * (1.2763)
FV = $63,814.07
When selecting projects, we often have the opposite information. We will

often receive projections of future values of what a project will deliver but
not the present values. The present values of these future returns need to
be calculated in order to determine which project to select.
Let’s say we are evaluating two projects, called Project A and Project B.
Project A is expected to make $650,000 in three years and Project B is
expected to make $750,000 in five years. How do we know which project to
select? To make the correct selection, we need to convert the future money
into a present day or present value amounts. This can be done by using the
discounted cash flow technique. The discounted portion of this technique
will convert future dollars into current dollars. The formula for determining
the current value of future money is:
30
PV = FV / (1 + i)n
Where, the present value is equal the future value divided by (1 plus the
interest rate) to the power of n periods. This is useful when selecting
between two projects that have different returns over different time periods.
Example
If project A is expected to make $650,000 in three years and Project B is

expected to make $750,000 in five years and the cost of capital is 8%,
which project should be selected if your organization can only work on one
project?
Project A = 650,000 / (1 + .08)3

Project A = $515,990
Project B = 750,000 / (1 + .08)5

Project B = $510,437
When using discounted cash flows as a project selection technique, the

project with the highest discounted cash flows will be selected. As a result,
Project A should be selected because the present value of $515,990
compared to $510,437 for Project B. Project A is the project that will return
the highest investment to the company so it should be chosen over Project
B.
Net Present Value
Net present value (NPV) allows you to calculate an accurate value for the
project in today's dollars. Just like calculating discounted cash flows, net
present value will allow you to evaluate cash inflows using discounted cash
flow techniques. The difference is that discounted cash flows can be applied
to each period of inflows. This is useful when the payback is described in
periods such as quarters or months instead of a flat sum for the year. This
technique is also useful when the cash inflow varies each month. The total
present value of the cash flows is then deducted from your initial investment
to determine NPV.
31
NPV can simply be used as a project selection technique where:
• The project should be accepted if the amount calculated is greater

than zero
• The project should be rejected if the NPV amount calculated is less
than zero
If comparing two projects that both have positive NPV values, the project
with the higher NPV value should be selected.
Internal Rate of Return
The internal rate of return (IRR) is another cash flow technique that can be
used for selecting projects. The IRR is the discount rate when the present
value of the cash inflows equals the original investment. If using IRR as a
technique to select projects, projects with higher IRR values are considered
better and more profitable than projects with lower IRR values.
32
Develop Project Charter Tools and Techniques
There are four tools and techniques defined for the develop project charter
process.
• Expert judgment
• Data gathering
• Interpersonal and team skills
• Meetings

Expert Judgment
Expert judgment is a technique that is used by many organizations when

creating the project charter. Expert judgment is a technique that can help to
integrate and assess the many inputs to create a successful project charter
for the project.
Expert judgment is defined as:
“Judgment provided based upon expertise in an application area, knowledge

area, discipline, industry, etc., as appropriate for the activity being
performed. Such expertise may be provided by any group or person with
specialized education, knowledge, skill, experience, or training.”
This definition was taken from the Glossary of Project Management Institute, A Guide to the Project
Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc.,
2017.
Expert judgment can be provided by any knowledgeable resource within or

outside to organization such as:
• Project team members,

• Project sponsor,
• Project stakeholders,
33
• Managers within the organization,

• Industry consultants, and
• Subject matter experts.
Data Gathering
Data gathering is a term for the techniques that are used to help generate
ideas to be used in the develop project charter process. One of the key
characteristics of data gathering techniques is that they typically require a
facilitator to guide the data collection process in order to help the project
team or selected individuals accomplish the activity.
34
Examples of data gathering techniques include:
• Brainstorming,
• Focus groups, and
• Interviews.
Interpersonal and Team Skills
Another tool and technique for creating the project charter is interpersonal
and team skills. The interpersonal and team skills that may be required to
create the project charter include:
• Conflict management,
• Facilitation, and
• Meeting management.
Meetings
Meetings are a tool used throughout a project to identify project objectives,

important deliverables, high-level requirements to be completed, project
milestones, milestone delivery dates, and other information that is shared by
project stakeholders.
35
Develop Project Charter Outputs
The outputs of the develop project charter process are:
• Project charter
• Assumption log

The project charter is typically a 5 to 10-page document that is used by the

project sponsor or project initiator to formally authorize the project.
The assumption log is a document that records all assumptions and

constraints used in the project planning. This document is updated
throughout the duration of the project.
Project Charter – In Detail
The project charter will typically include the following sections:
A. General information
B. Project purpose or justification
C. Project objectives
D. High-level requirements
E. Assumptions and constraints
F. Project description
G. Project risks
H. Summary milestone schedule
I. Summary budget
J. Stakeholder list
K. Project approval requirements
L. Assigned roles and responsibilities
M. Signatures
36
General information
The project charter will start off with general information about the project.
This is where general information about the project is documented.
General information would include the following information:
• Project title
• Brief project description
• Prepared by
• Date
• Version
General information would document the project title. It is not necessary

but it can also include a brief description of the project (there are additional
fields for added more detailed information, so here just add a brief
description in the general information area of the project charter). Other
information is not mandatory but useful for keeping track of the document
as it evolves and updated. The prepared by field would typically be the
project sponsor. It may also be a senior manager. The individual that is
going to be creating the project charter would be listed here. Finally, I
would enter the date and version into the appropriate fields.
37
Project Purpose or Justification
This should reiterate the business need for the project. It should also
include the data supporting the business need.
Project Objectives
This should define and document the objectives for the project. Project
objectives must be measurable in order to be useful to measure project
success. This section must define the criteria for success. Therefore, these
are the requirements that must be completed in order to satisfy project
stakeholder expectations.
38
High Level Requirements
High-level requirements define the overall requirements for the project.

High-level requirements include statements such as: To expand the data
center or to create a new mobile app. The specifics are not required here
only the high-level requirements for the project.
Assumptions and Constraints
Assumptions and constraints must be defined in the project charter.

Assumptions are the items believed to be true and valid at the time of
writing the project charter. Constraints are limiting factors that affect the
execution of a project. All constraints should be listed including internal
constraints as well as external constraints.
39
Project Description
The project description should be presented at a high level. This would be a

high-level description of the project or the product to be created. This
description should describe exactly what is to be created. This should also
define the boundaries of what will not be created from the project. For
example, the high-level description would be to create a new mobile app for
clients to check their account. This means the project will only allow clients
to check their accounts. This description defines exactly the description of
the project. By doing this, it also by default defined what will not be
included in the project. In this case, the project will not allow clients to
update their account, the new mobile app will only allow clients to check
their account. Creating a new mobile app allowing clients to update their
account can be the description for another project.
40
Project Risks
Project scope, constraints, and assumptions will define the basis for defining
the high-level risks that will be associated with this project. These should
also be documented in the project charter. Project risks will be at a high
level because there is not enough detail to defined detailed risks at this
stage of the project.
Summary Milestone Schedule
The project charter must include the milestones for the project. These
should be presented in a summary schedule. There is not enough
information known at this point to create a detailed schedule.
41
Summary Budget
The project charter should also include a summary budget providing an

approximate cost for project items or tasks. Again, this would be a
summary budget because there is not enough information known at this
point to create a detailed budget.
Stakeholder List
This will be a list of project stakeholders that will be involved in the project.
If possible, this list should also include each stakeholder’s likely involvement
and influence (positive or negative) on the project.
42
Project Approval Requirements
The project charter should list the requirements for the project charter to be
approved.
Assigned Roles and Responsibilities
The roles and responsibilities of important project participants should be

documented in the project charter. The most important is the role of the
project manager. The project charter should also list the project manager’s
responsibilities as well as their level of authority for the project. Specifically,
the authority should describe the project manager’s right to apply project
resources, spend project funds, make decisions, or provide approvals.
Others that can also be named in the project charter include:
• Project sponsor
• Project team members
• Consultants
• Subject matter experts
43
Signatures
The last section of the project charter is the required signatures section.
This section should have an area to sign off on the project charter for the
customer, project sponsor, and project manager. Each must sign off on the
project charter in order to authorize it and initiate the project.
44

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1

Creating the Project Charter

Copyright 2015 to 2018 by NetCBT, Inc.

Data Gathering ...................................................................................................................................... 44

At the end of this course, students will be able to:

• Identify the different phases of a project

This course is aligned with A Guide to the Project Management Body of

Project Life Cycle

In most cases, the phases of a project match the following:

• A starting phase where the project or project phase is officially started

Project Management Process Groups

There are five process groups define by the PMBOK® Guide.

The five process groups are:

Project Management Institute, A Guide to the Project Management Body of Knowledge,

A process is defined as a group of interrelated activities that are performed

product, a result, or a service. Each of the processes has a deliverable as

For example, monitoring the execution of a project may identify a problem

In this course, we will be focusing on developing the project charter, which

Initiating Process Group

Project Management Institute, A Guide to the Project Management Body of Knowledge,

The initiating phase of the project is also when a project manager is

Initiating Group Processes

The initiating phase includes the following processes:

• Develop project charter

Project Management Institute, A Guide to the Project Management Body of Knowledge,

Develop Project Charter

Project Charter Development

• The project charter should provide a high-level description of the

indication of the project schedule, important milestones of the project

Project Charter Sign Off

• The document has been read by those signing it

Project Integration Management

The processes in the project integration management knowledge area are:

• Develop Project Charter

Project Management Institute, A Guide to the Project Management Body of Knowledge,

Develop project charter is the first process in the project integration

Project Integration Management is a knowledge area that takes a high level

Develop Project Charter Inputs

The inputs for developing the project charter are:

Project Management Institute, A Guide to the Project Management Body of Knowledge,

A well-written business case should express both tangible and intangible

A business case is a crucial project document that will be referenced during

Business Case Drivers

Market demand – this is what the market is requesting, which is all

Organizational need – the project is dictated by what is needed by the

Customer Request – this is what the company’s customers are

Technological advance – this is when a new technology is driving a

Legal requirement – this is when codes or laws are driving a project.

Ecological impact – there are many green initiatives driving products

Business Case Example

Let’s look at an example of a business case for a new project. My project is

Deliverable – Create a new mobile friendly website with a responsive design.

Business drivers – earlier we mentioned various drivers for a project. Here

Recommendations/decisions to be taken – Hire 4 contract programmers with

In this case, the recommended option is option number 3, which is to hire

Benefits – The benefits of a mobile friendly website with responsive design

Conclusion – this should be a summary document that stresses the high

Finally, if it is not done, the executive summary should be created.

Business Case Exercise