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(Solved) 12 Chapter A4148 23218 6/8/01 6:25 PM Page 361 12Initiating Objectives After reading this chapter, you will be able to: Understand the importance of...

Read Chapter 16 - Closing (p. 433 - 444)

1. Describe the key processes and outputs of the project closing process

group. Describe some of the outputs of closing the ResNet project.

2. Review the goals of the ResNet final audit report. What was the focus of

the audit? Why was it important to document the methodology assumptions?

What other questions could be included in a final project audit?

12 Chapter A4148 23218 6/8/01 6:25 PM Page 361 12Initiating
After reading this chapter, you will be able to:
1. Understand the importance of initiating projects that add value to an
2. Discuss the background of ResNet at Northwest Airlines
3. Distinguish among the three major projects involved in ResNet
4. Appreciate the importance of top management support on ResNet
5. Discuss key decisions made early in the project by the project manager
6. Relate some of the early events in ResNet to concepts described in
previous chapters
7. Discuss some of the major events early in the project that helped set the stage
for project success F ay Beauchine became Vice President of Reservations at Northwest
Airlines (NWA) in 1992. One area that had continually lost
money for the company was the reservations call center. Fay developed
a new vision and philosophy for the reservations call center that was
instrumental in turning this area around. She persuaded people to
understand that they needed to focus on sales and not just service.
Instead of monitoring the number of calls and length of calls, it was
much more important to focus on the number of sales made through the
call centers. If potential customers were calling NWA directly, booking
the sale at that time was in the best interest of both the customer and
the airline. Additionally, a direct sale with the customer saved NWA
13 percent on the commission fees paid to travel agents and another
18 percent for related overhead costs. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 362 362 s C H A P T E R 1 2 Fay knew that developing a new information system was critical
to implementing a vision that focused on sales rather than service,
and she wanted to sponsor this new information system. Although
the Information Services (IS) Department had worked to improve
the technology for call centers, past projects never went anywhere.
The new reservation system project, ResNet, would be managed by
business area leaders and not Information Services managers—a first
in NWA’s history and a major culture change for the company. Fay
made Peeter Kivestu, a marketing director, the project manager for
the ResNet Beta project in 1993. NWA was going through tremendous business changes at that time, and the airline almost went
bankrupt in 1993. How could Fay and Peeter pull off the project? WHAT IS INVOLVED IN PROJECT INITIATION?
In project management, initiating is the process of recognizing and starting a
new project or project phase. This process seems simple enough, but a lot of
thought should go into it to ensure that the right kinds of projects are being
initiated for the right reasons. It is better to have moderate or even a small
amount of success on an important project than huge success on an unimportant one. The selection of projects for initiation, therefore, is crucial, as is the
selection of project managers.
Recall from Chapter 4, Project Scope Management, that strategic planning serves
as the foundation for deciding which of several projects to pursue. The organization’s strategic plan expresses the vision, mission, goals, objectives, and strategies of the organization. It also provides the basis for information technology
project planning. Information technology is usually a support function in an
organization, so it is critical that the people initiating information technology
projects understand how those projects relate to current and future needs of the
organization. For example, Northwest Airlines’ main business is providing air
transportation, not developing information systems. Information systems, therefore, must support the airline’s major business goals, such as providing air transportation more effectively and efficiently.
Information technology projects are initiated for several reasons, but the
most important one is to support explicit business objectives. As mentioned in
the opening case, Northwest Airlines was having financial difficulties in the
early 1990s, so reducing costs was a key business objective. Providing an information system to stop the financial drain caused by the reservation call centers
was the primary objective of the ResNet project. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 363 s I N I T I AT I N G 363 Table 12-1 lists the knowledge areas, processes, and outputs that are typically
part of project initiation. Tasks often involved in the project initiation process
include the completion of a stakeholder analysis and preparation of a feasibility
study and an initial requirements document. The outputs or outcomes of project
initiation generally include a project charter of some sort, selection of a project
manager, and documentation of key project constraints and assumptions. This
chapter provides background information on Northwest Airlines and ResNet
and then describes the initiation tasks involved in this large information technology project.
You will find in this chapter, and the following process group chapters, that
real projects often do not follow all of the guidelines found in this or other
texts. For example, the initiating project management process group generally
only includes the process of initiation, part of project scope management, and
the outputs listed in Table 12-1. The first ResNet project, the ResNet Beta or
Prototype project, included some but not all of these outputs plus several
others as part of initiating and preproject planning. Many projects include
groundwork that is done before they are considered to be official projects.
Every project is unique, as is every organization, every project manager, and
every project team. These variations are part of what makes project management such a diverse and challenging field.
Table 12-1: Initiating Processes and Outputs
KNOWLEDGE AREA PROCESS OUTPUTS Scope Initiation Project Charter
Project Manager Identified/Assigned
Northwest Airlines is the world’s fourth largest airline and America’s oldest carrier.
Northwest began on October 1, 1926, flying mail between Minneapolis/St. Paul
and Chicago. Passenger service began the following year. On July 15, 1947,
Northwest pioneered the “Great Circle” route to Asia, with service to Tokyo,
Seoul, Shanghai, and Manila.
Today, Northwest Airlines, with its global travel partners, serves more than
750 destinations in 120 countries on six continents. In 2001, it had more than
53,000 employees worldwide. The U.S. system spans 49 states and the District
of Columbia. Northwest has more than 2,600 daily flights and operates more 12 Chapter A4148 23218 6/8/01 6:25 PM Page 364 364 s C H A P T E R 1 2 than 200 nonstop flights between the United States and Asia each week. Hub
cities include Detroit, Memphis, Minneapolis/St. Paul, and Tokyo.
In the early 1990s, Northwest Airlines’ sales agents accessed a reservation
system by using approximately 3,000 dumb terminals—display monitors,
with no processing capabilities, connected to a mainframe computer. As the
airline business became more complicated and competitive, so did the reservation process. Calls were taking longer to complete and few direct sales
were being made. Therefore, the airline was losing money by providing this
necessary function of the business. It was Fay Beauchine’s intent to turn
this situation around by initiating the ResNet project. BACKGROUND ON RESNET
Arvid Lee had worked in the IS Department at Northwest Airlines since 1971.
One of the project ideas he and his colleagues had kicked around for several
years was improving the system interface for the sales agents in the call centers. Changes in the business were making the call center jobs more complicated, and sales agents were complaining about the old Passenger Airline
Reservation System (PARS). The government had just deregulated the airline
industry, and new marketing initiatives such as frequent flier programs complicated matters. The average length of calls in the call centers was increasing due
to the complexity of the job and the inflexibility of the information system
being used. The IS Department did some research on improving the interface of
the reservation system, but no improvements were ever implemented.
Figure 12-1 shows a sample screen from the PARS reservation system used
at Northwest Airlines in the early 1990s. Notice the unfriendly, character-based
interface. There was only one window with no help or menus to assist sales
agents in the reservation process. Sales agents attended special training classes
to learn all of the codes and procedures for using the PARS reservation system.
At times, the call center job would get very demanding as more and more people
called to obtain flight information, and the PARS information system provided
little flexibility in helping sales agents meet potential customers’ needs.
In 1992, Fay Beauchine became the Vice President of Reservations at Northwest
Airlines. She knew the call centers were losing money, and she knew their focus
on improving service was not working. Fay realized that a major change was
needed in the information systems used by the sales agents. They needed a system
that would help them quickly give potential customers complete and accurate
information and allow them to book flights directly with NWA. Fay also knew that
several competing airlines had successfully implemented new reservation systems. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 365 s I N I T I AT I N G 365 Figure 12-1. Sample Reservation Screen Before ResNet Peeter Kivestu was a marketing director at NWA in 1993. He knew the
company was having financial problems, and he had heard about Fay’s vision
of turning around the call centers. Peeter met with Fay to exchange ideas, and
they both decided that Peeter could meet the challenges of being the ResNet
project director. (NWA did not have a job title of project manager in 1993, so
Peeter was named the project director, their title for a project manager. He will
be referred to as the project manager in this book.)
To succeed, Peeter knew that he needed strong support from the IS Department.
Peeter had discussed the project with the director of Information Services, and she
agreed to have her department support the project. In May 1993, Peeter met with
Arvid Lee, a technical specialist and senior member of the IS Department. Arvid
had a great reputation in the company, and Peeter wanted to solicit his ideas and
support for developing the new reservation system.
Arvid’s first meeting with Peeter was quite an experience. Peeter exuded
energy as he explained his overall strategy. He wanted to have a beta version of
the new reservation system (ResNet) done in less than fifteen months—by
early August, 1994. A rough estimate for creating a beta version of the system
was about $500,000. Peeter asked Arvid to take the lead on developing a
project plan for the beta system, and he wanted the plan done in one week.
Arvid would be in charge of all of the Information Services people supporting
the ResNet Beta project, focusing primarily on the hardware, networking, and
software integration efforts. His title would be the ResNet IS project manager.
Arvid would also work with Kathy (Krammer) Christenson, a former marketing
analyst and the new ResNet application development manager, to customize the
ResNet software to meet the sales agents’ needs. ResNet would use off-the-shelf 12 Chapter A4148 23218 6/8/01 6:25 PM Page 366 366 s C H A P T E R 1 2 software as much as possible, but NWA staff would have to do some customization, system software development, and new application development to have
the new system work within their company’s business environment.
After completing a prototype system that would prove the potential benefits
of ResNet, Peeter would have to convince upper management to invest over
$30 million in a new system involving over 3,000 personal computers. To get
initial and continued funding, Peeter knew they needed to prepare convincing
documentation for the project, especially since the airline was not in good
financial health. Creating a way to measure the benefits of ResNet was a key
part of his strategy from the start.
Although the budget plans for all 1993 projects were due in September,
Peeter knew he could not sit around and wait for formal approval before he got
people working on ResNet. By the time any official funds were approved in
December of 1993, Peeter had about twenty people working on the project in
various capacities. Several Information Services staff were redirected from
other, lower-priority projects, to help support ResNet. Other NWA staff in the
call centers and other departments supported the project part-time while
maintaining their normal duties. These people worked on developing the plan
for the beta test, researching various software and hardware options, documenting the work flow of the current reservation process, recruiting people to
work on the project, and so on. After funds were approved and the ResNet
Beta project was formally recognized in December of 1993, several people were
officially assigned to the project.
Recall that every project is unique and has a definite beginning and a definite
end. Many large information technology projects are also broken down into
smaller projects. ResNet was really a series of three distinct projects. Table 12-2
provides an overview of the three distinct projects undertaken in creating
ResNet—the ResNet Beta or Prototype project, ResNet 1995, and ResNet 1996.
Each project had specific scope, time, and cost goals. Peeter Kivestu was the
project manager for all three ResNet projects, with Arvid Lee and Kathy
Christenson as team leaders.
The ResNet Beta project or prototype started in May of 1993 and ended in
August of 1994. The Beta project involved customizing and testing new reservation software and hardware using sixteen personal computers. The project
also involved developing a method for measuring the true benefits of ResNet
before making major financial investments in new reservations systems. This
project cost about $500,000.
The ResNet Phase I project, also called ResNet 1995, was approved by NWA’s
finance committee in November of 1994. This project involved installing personal computers in the call centers in Baltimore and Tampa and the international portion of the Minneapolis/St. Paul reservations offices. It also involved
developing ResNet software for Reservations Sales and Support, the new Iron
Range Reservations Center, and the Sales Action Center. The price of this 1995
project was about $8.3 million in capital costs: computer equipment, facilities,
and purchased software. The total cost estimate for the ResNet 1995 project
was about $13 million. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 367 s I N I T I AT I N G 367 Table 12-2: Three Main ResNet Projects
OR PROTOTYPE RESNET 1995 RESNET 1996 Scope Writing and testing new
reservations system software,
installing system on 16 PCs,
developing measurement
approach Installing PCs, software,
and networks in
Baltimore, Tampa,
and international
portion of Minneapolis/
St. Paul reservations
offices; developing
more software Completing the
installation of PCs,
software, and
networks at other
six reservations
offices, developing
more software Time May 1993 – August 1994 September 1994 –
December 1995 August 1995 –
May 1997 Cost About $500,000 About $13 million About $20 million The ResNet Phase II project, also called ResNet 1996, completed the installation
of the new reservations system at six other call centers and provided additional
software development. This project cost another $10.7 million in capital and
$20 million total. The total cost of all three ResNet projects was approximately
$33.5 million. More detailed information on project costs is provided in
Chapter 13, Planning. What Went Wrong?
After finishing the ResNet Beta project, Peeter and his team saw the rest of ResNet as one
large project to implement the new reservation system in all of the call centers. Senior
management, however, broke the rest of ResNet into two separate projects, ResNet 1995
and ResNet 1996. Their goals were to avoid a huge investment commitment and to provide
further incentives for the ResNet team to produce successful results. If the ResNet 1995
project was not successful, senior management would decide not to fund the 1996 project.
Although this strategy reduced financial risk, Peeter and his team did not like the decision.
If ResNet 1996 were not approved for some reason, they would be stuck with two totally
different reservations systems in different sales offices. This situation would cause huge
management, technical, and support problems. The ResNet 1995 team was under a lot of
pressure to do a good job or the ResNet 1996 project would not be funded. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 368 368 s C H A P T E R 1 2 SELECTING THE PROJECT MANAGER
An important part of project initiation is selecting a project manager. Fay
Beauchine asked Peeter to be the project manager for several reasons.
s s s Peeter knew the airline business and had over thirteen years experience in
the industry. He joined Northwest Airlines in 1991 after holding several positions at Canadian Airlines International and American Airlines. Peeter had a
bachelor’s degree in engineering and a master’s in aeronautics and finance.
He understood the technology. Peeter was Vice President of Advanced
Productivity Programs at Canadian Airlines International in the late 1980s.
He was very successful at leading business and technical professionals in
developing and applying new technologies.
He knew that technologies could improve business productivity. Peeter was
working in NWA’s marketing and scheduling area and had some discussions
with Fay about new reservation technologies. He made a case to Fay that
big technology projects can be successful if managed properly. He convinced
her that he was the right person for the job. His passion for the project was
obvious to Fay, and Peeter used this passion to convince others how important ResNet was for Northwest Airlines. PREPARING BUSINESS JUSTIFICATION FOR THE PROJECTS
Most projects require some form of justification to secure resources and funding.
Whereas the ResNet projects addressed a broad organizational need to cut
costs, they also required significant investments before any cost reductions
would be realized. Peeter used different approaches for justifying each of the
ResNet projects: the Beta project, ResNet 1995, and ResNet 1996. ResNet Beta Project
Fay, Peeter, and Arvid took specific actions to convince senior management at
Northwest Airlines to fund the ResNet Beta project. All three people understood
the company’s strategic plan and knew that it was important to cut costs, minimize
risks, and remain competitive in handling reservations.
Fay convinced senior managers at numerous meetings that her vision of
focusing on sales would turn around the poor financial performance of the
reservation centers. She did an excellent job of analyzing the stakeholders and
addressing their unique interests and concerns. She emphasized the fact that
the company had to continue making some investments to improve its financial
performance. The $500,000 they were asking for was a reasonable investment
given the huge potential benefits of the project. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 369 I N I T I AT I N G s 369 Peeter had a successful track record in implementing information systems to
meet business goals, and he focused on using proven technology to reduce
potential risk. Peeter collected facts showing that their competitors were
increasing productivity by investing in new reservations systems. Peeter’s
experience and charismatic personality convinced people that ResNet was the
project to work on and that failure was not an option. Having a strong project
manager helps to justify investing in new projects and reduces project risk.
Arvid was very familiar with what competing airlines were doing in their
call centers, so he knew what NWA had to do to remain competitive. Arvid’s
expertise was instrumental in planning the details of the beta project and making recommendations on hardware, software, networks, and staffing. The plans
he helped create convinced senior management that the ResNet team knew
what they were doing. ResNet 1995 and ResNet 1996
After successfully completing the ResNet Beta version of the new reservation
system on time and on budget, Peeter and his team had to convince upper management to make a major investment in the operational ResNet system. They
developed a project plan in October 1994, for the 1995 and 1996 ResNet projects. What Went Right?
Peeter and the ResNet team prepared outstanding business justification for all of the
ResNet projects. Using his strong technical and business skills, Peeter wrote persuasive documents justifying ResNet, and he made a good case in his presentations. Peeter’s justification strategy for the 1995 and 1996 ResNet projects included very strong financial analysis,
which greatly impressed the finance committee. Peeter knew that the decision makers
wanted to see the bottom-line numbers, and he provided those numbers with detailed
rationale for how he got them. He prepared a five-year cash flow analysis of all costs and
benefits, clearly defined major assumptions, and described the basis for all of his projections. It was obvious to the finance committee that Peeter knew what he was doing. They
also appreciated the fact that someone leading a major information technology project was
driven by business needs instead of technology needs. Because of the company’s poor financial condition in 1994, Peeter knew
he had to have an extremely compelling argument to convince senior management to make any large investments in information technology. When
communicating with upper management, Peeter focused on the key business
objectives of the project, highlighted the impressive results from the beta
project, and focused on the opportunity to make money with the new system. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 370 370 s C H A P T E R 1 2 Peeter provided detailed financial estimates in the ResNet 1995-1996 project
plan. (Peeter viewed ResNet 1995 and 1996 as one large project in his initial
project plans and business justifications.) Table 12-3 shows the financial summary
from the October 1994 ResNet project plan. Peeter and his team estimated a
net present value of $37.7 million for the project, based on a five-year system
life and an 11.5 percent discount rate. Peeter also estimated the discounted
payback period for ResNet to be 30 months or 2.48 years, and the internal rate
of return as 45.2 percent. All of these financial projections provided strong
support for investing in ResNet for 1995 and 1996.
Table 12-3: ResNet 1995-96 Financial Summary
FINANCIAL CATEGORY EXPENSE (MILLIONS Net Present Value over 5 years @ 11.5% 37.7 OF DOLLARS) Commitment (over 5 years)
- One-time capital 21.5 - Chisholm equipment credit (2.4) - One-time operating expenses 2.6 - Recurring operating expenses 11.9 The majority of estimated benefits came from increasing the sales conversion,
the percentage of calls that resulted in direct sales. This benefit is also called
improving the call-to-booking ratio. Peeter prepared a detailed financial analysis
of the estimated benefits of improving the call-to-booking ratio. Inputs for this
calculation included the annual number of calls, the booking percentage with
and without ResNet, the assumed percent of bookings flown, the average number of passengers per booking, the airfare, the savings due to direct sales from not
paying the 13 percent commission fees to travel agents, and an additional 18 percent for overhead cost savings. Another major category of projected benefits was
a reduction in headcount (sales agents) due to reduced call-handling times.
Peeter also explained the capabilities of the new reservation system in business terms. In the project plan to management he wrote:
“The objective of the ResNet PC user presentation software is to convert
agents from reservationists to salespeople through the use of intuitive software, which anticipates the information an agent will need, incorporates
context-appropriate sales messages, highlights marketing programs and
promotions, and ensures accuracy and consistency in call handling.”1 Figure 12-2 shows a sample of the ResNet screen. Notice that much more
information is available on the new reservation system screen than was available on the old screen (see Figure 12-1). A critical part of the software develop1 Kivestu, Peeter, PR2 submitted to Robert E. Weil and Anne C. Carter, October 25, 1994. 12 Chapter A4148 23218 6/8/01 6:25 PM Page 371 s I N I T I AT I N G 371 ment for ResNet involved integrating information from different areas and
putting that information all on one screen. The added context-appropriate sales
messages a...


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