PMI Authorized PMP Exam Prep: Lesson 1 Business Environment

The goal of this artifact is to provide a quick overview of the Business Environment , the first lesson of PMI Authorized PMP Exam Prep. The key motivation is to enable our course participants with content that reinforces all the topics covered in the class on Saturday as part of the PMP course at Education Edge. 

This lesson addresses the concepts and business areas that you should understand before starting a project. It also supports learning related to the “Business Environment” domain in the PMP Exam Content Online (ECO), and the “Business Acumen” side of the PMI Talent Triangle. 

Central to this lesson is determining the purpose and expectation for the project, as well as the parameters and expectations of the project within the business.

The business documents which were used to approve the project will provide most of the initial information needed. If these documents are not available, you will need to quickly determine the purpose and expectation for the project. Having a sharp strategic business acumen will enable you to do this. 

The Business Environment includes the following six topics:

Topic A: Foundation

Topic B: Strategic Alignment

Topic C: Project Benefits and Value

Topic D: Organizational Culture and Change Management 

Topic E: Project Governance

Topic F: Project Compliance

Topic A: Foundation

The first topic under the Business Environment is about the foundation of project management.

What is a Project?

Projects drive and adapt to change as well as create business value.

Successful project management includes understanding project management concepts and being able to adapt and apply them to the individual project.

Learn all about Agile and Predictive using this link and video: All about Predictive and Adaptive approaches

Tailor Projects keeping in mind the context

Because of the way projects and project management have evolved, it is important to emphasize that no two projects are the same – and therefore it is even more important to understand concepts and apply them when appropriate to individual project efforts.

We refer to this action as tailoring. It applies to tools, techniques, processes, ways of doing things—any aspect of project management.

Tailoring occurs continuously throughout a project.

In a project environment, tailoring considers the development approach, processes, project life cycle, deliverables and choice of people with whom to engage. 

The needs of the delivery approach, product and organizational environment will determine which methods are most applicable for a specific project.

This represents the evolution of project management into hybrid approaches, processes, practices and methods. 

Topic B: Strategic Alignment

Strategic Alignment is the second topic under Business Environment. Professionals at all levels need the ability to cultivate effective decision-making skills and understand how their projects align with the big picture of broader organizational strategy and global trends.

Moreover, because today’s projects demand a broad set of skills and capabilities, PMI will continue to focus on giving you the tools and insights you need to develop new skills and tackle your next project challenge. 

Elements of Strategic Management

Strategic management includes the following elements :

  • Vision: Where the business wants to go (aspirational)
  • Mission: Its pre-established objective or purpose
  • Objectives: Defined areas of pursuance  ​
  • Goals: Milestones, resources
  • Strategies: Resources used to accomplish organizational purpose
  • Programs/projects
  • Operation procedures (SOPs)
  • Organizational structures

The vision, mission, objectives and goals are met by identifying specific strategies that can be implemented by the combined portfolio of programs and projects, as well as ongoing operations.

In addition, operational procedures, otherwise known as OPAs, are established to carry out the strategic elements. 

Organizational resources support and work toward establishing the most appropriate organizational structure to achieve those strategies.

Organizational Influencers

Projects operate in environments that may influence them, favorably or unfavorably.

Enterprise Environment Factors (EEFs) and Organizational Process Assets (OPAs) are the two main categories that influence how a project is performed. EEFs and OPAs must be considered at the very beginning of the project.

EEFs and OPAs are a standard part of every project, and you need to understand the part they play in the strategic alignment of the project. 

We need to look at external and internal Enterprise Environment Factors (EEFs) — constraints and forces that will exert pressure on your work. 

For Organizational Process Assets (OPAs), you need to be familiar with how your organization works — the policies, procedures and so-called “standard operating procedure”—so your project can work alongside it smoothly.

Evaluate the external Business Environment
  • Aside from being an active listener and engaged in the normal course of work, there are a few ways to help understand the business environment better, using prompts.  
  • These can be used to guide the understanding of external factors that may impact the project. Brainstorming or discussion with the team can help elicit scenarios.
  • These are often used as categories when identifying project risks.
  • Common prompts include:
    • PESTLE (political, economic, social, technical, legal, environmental)
    • TECOP (technical, environmental, commercial, operational, political)
    • VUCA (volatility, uncertainty, complexity, ambiguity)

Other ways to understand the external business environment better include:

  • Comparative advantage analysis​
  • Feasibility studies​
  • SWOT analysis​
  • Assumption analysis​
  • Historical information analysis​
  • Risk alignment with organizational strategy

Internal Factors

  • You need to know because organizational changes can make a dramatic impact on the scope of a project.
  • You need to have visibility into business plans, reorganizations, process changes and other internal activities. These are the internal EEFs.
  • Internal business changes might require your project to respond with changes before or during the project effort.

Topic C: Project Benefits and Value

Project Benefits and Value constitute the third topic under Business Environment. Project managers need to think strategically and ensure that project results provide the expected outcomes (benefits and values) to the organization.

These benefits and values should be understood at the beginning of the project, reassessed throughout the project effort and validated at the end of the project — even though in many cases the actual determination of the benefit will not be apparent until long after the project has been completed.

Business Value

The goal of a project is to provide value to a business.

  • Value and benefit to the business can be tangible, intangible or both.
  • The initiating agreements are the business case, or, in some cases, a contract or statement of work (SOW).
  • Benefits realization is based on business value.

Projects exist to deliver business value—whether that is monetary value, an improvement on a product or service or otherwise.

Critical thinking and analysis are often used to determine what is of value to the business. Think beyond the primary value benefits and really try to understand how else your project can provide value to the business. Ask questions of stakeholders, examine business artifacts and do some research!

Components of business value can include:

  • Shareholder value: in a publicly traded company, the part of capitalization that is equity as opposed to debt; for example, the number of outstanding shares multiplied by the current share price.
  • Customer value: the value received by the customer of a product or service.
  • Employee knowledge: an asset of the business, a frequently overlooked component of business value.

Channel partner value: the value derived from relationships with business partners.

Needs Assessment
  • In order to determine how organizational resources should be allocated, an evaluation and assessment of needs must be conducted. This includes understanding the strategic goals and objectives of the organization, current issues and opportunities, and the impact they have on the organization.  
  • This analysis determines whether the situations are required, desired or optional. These are presented initially as a situation statement.
  • After a situation statement has been developed, recommendations are made as part of a proposal to address what should be done, and identification of any constraints, assumptions, risks and dependencies which may apply.  
  • Success measures are identified, as well as a potential implementation approach.

This area of needs assessment is documented as a task often performed by a business analyst and has been identified in the PMI’s Business Analysis for Practitioners: A Practice Guide.

Business Documents (Business Case and Benefit Management Plan)
  • If a business is well organized, you will have access to clear business documents. 
  • They can help you determine whether the project is worth the investment that will be required. 
  • The business need and often a cost-benefit analysis are included, especially when one project request is to be compared against another for authorization. 
  • Many of the business documents are developed prior to the start of the project by a business analyst or key stakeholder.
  • In these documents, business goals and objectives are identified and provide valuable information as to how the project’s objectives will contribute to achieving the organization’s goals.
  • You need to review them periodically to ensure that the project is still in alignment with the organizational goals and objectives.

The business case has been written and prepared by the requesting organization or customer and may also include a number of project selection techniques to help sell or justify the selection and authorization of this project. The importance of meeting a specific schedule, or cost constraints, as well as any quality specifications may also be stated in the business case.

After the business case is accepted and transformed into the project charter, then the project manager and project sponsor are responsible for delivering based on the contents approved and investment decision.

A benefits management plan can also identify the tangible and intangible benefits and how the project objectives and goals will be strategically aligned with the business strategies to accomplish the benefits. 

  • This is a key deliverable for programs, especially since programs are intended to deliver benefits.
  • The time frame for realizing benefits may be both short term and long term, and that may be stated in this document. 
  • The benefits owner, or the person accountable, along with what metrics will be used to measure the benefits, may be included. 
  • Any assumptions, constraints and risks associated with realization of benefits may be provided.
  • This plan is thoroughly explained as a domain in PMI’s The Standard for Program Management.
  • Ensuring that benefits are delivered as the result of the project effort is a key responsibility of the program manager in large projects or programs.
Benefits Measurement Methods

The methods included here range from a very simple calculation to those requiring more in-depth financial analysis techniques. These techniques are more appropriate to a project that takes multiple years to deliver and/or return benefits.

There are two main types of benefit measurement methods — business-based and financial-based. 

The business-based measurements include the payback period and opportunity cost.

The financial-based measurements include:

  • Benefit/cost analysis and ratio
  • Time value of money calculations (including present value (PV), future value (FV) or net present value (NPV). 
  • Internal rate of return (IRR) is also a financial tool often used in capital budgeting. IRR is the discount rate at which the NPV of the project is zero. It is calculated iteratively, by setting up the  NPV calculation in a spreadsheet or other software and changing the discount rate until the NPV equals zero.
  • Another common method used is the determination of the return on investment (ROI) and determination of the opportunity cost, for the project that was not selected or approved. 
    • It is sometimes called the “rate of return” and is usually expressed as a percentage. 
    • A positive ROI is interpreted as a good investment, and a negative ROI indicates a bad investment.
    • Calculated as: Net benefit (benefit – cost) / Cost
Note: You will not need to calculate this for the exam. You only need to understand the concept and how it is often used to select projects.

There are additional mathematical models that can be used but are far beyond the scope of this course and the PMP certification exam.

As a project manager you will very seldom, if ever, be responsible for actually determining these various calculations, but if they have been used to justify the selection of the project, you need to understand what they are and how they were derived. 

If you are unfamiliar with any of these terms, an internet search is well worth the time.

For the exam, you must remember that when given various options, for the business-based method you choose the smallest number — it indicates the shortest duration for benefit realization. For the financial-based method you choose the largest number — the greatest potential for profit.

Project Selection Methods

Factors to determine Present Value (PV) include:

  • Future value
  • Interest rate
  • Number of periods

Note: This information is normally provided to the project manager by the financial organization. You will not need to calculate this for the exam.

Note: In financial formulas, PV represents  present value. In Earned Value Management, PV represents planned value.

Net Present Value: The present value of all cash flows at the required rate of return, compared to the initial investment.

  • NPV is a financial tool used in capital  budgeting.
  • NPV compares the value of a currency unit today to the value  of the same currency unit in the future, after taking inflation and discount rate into account.

Often used to select from among many projects – choose the project with the largest NPV

Neither of these calculations are required – just the understanding of how estimates change for multi-year projects (PV) and how they are used to select projects. 

Leverage Incremental Delivery
  • Businesses need to show value delivered to please stakeholders and, in many cases, to continue funding the project!
  • Breaking down the delivery of features and functions (where possible) enables continuous progress and feedback on the results delivered.

Topic D: Organizational Culture and Change Management

The fourth topic in Business Environment focuses on Organizational Culture and Change Management. Projects create and deliver change, and change is often the catalyst for the authorization of a project. Arguably, change is the single biggest factor in business decisions. Envisioning your project as part of the organization in which it “lives” means being part of any change initiative that the organization takes. 

This will mean adapting your project as well as realigning it with the changing business objectives.  In addition, it is important to understand how organizations typically work, then consider a few different project management setups, and finally how project managers and PMOs roll out and support change initiatives in organizations.

Change Management
  • Organizational culture is one of the key factors in project success or failure. 
  • You need strong people “power skills” to lead projects in a changing environment, and you need to know how to best position and guide your project for success.
  • Organizations embrace change as a strategy to balance investment and risk, be more flexible and ensure maximum ROI. 
  • In organizations with PMOs, PMOs build and sustain alignment between projects and the organization with process updates, capability enhancements and new skills that support project management.
  • Change management works hand in hand with continuous improvement and knowledge transfer activities at the PMO level. This is one of the three key areas in which PMOs support value delivery (the others are fostering delivery and outcomes-oriented capabilities and keeping a ”Big Picture” perspective).
Organizational Culture and Style
  • Every organization develops a unique culture and style that represents its cultural norm and affects how projects are performed. We can think of this as an internal brand which is composed of the items on this list.
  • Culture impacts the shared visions, values and beliefs, as well as the regulations and policies and procedures that have been implemented within the organization. 
  • Often this culture dictates the hierarchy and characteristic of leadership inherent in the organization, as well as the authority levels of other relationships. 
  • The culture often establishes a code of conduct, including the work ethic and the actual hours to be worked.
  • As a project manager, you should understand that cultures have a strong influence on a project’s ability to meet its objectives, and that any change will likely be met with some degree of resistance. 
  • If you begin with a solid knowledge and consciousness about the organization’s style and culture, then your change management practice has a good place to start.
Organizational Culture and Risk tolerance

This is another component of the Business Environment. One of the areas closely tied to the culture of the organization, and which project managers must be keenly aware of, includes the risk tolerance of not only the organization but of the individual stakeholders within that organization. This becomes a key part of the risk strategy that must be identified for a project.

  • Views about risk differ in global countries and regions.
  • Diversity also is a highly variable element in organizational cultures — diversity of people, cultures, thought, abilities and many other kinds of diversity must be factored in as changemaking entities.
  • Industries and sectors also treat risk differently — e.g., highly technical sectors value high-risk strategies like experimentation, but tolerate little risk in actual production work activities.
  • Leadership also dictates how much of the organization treats risk. For example, a conservative CEO or leadership contingent may command a risk-averse organization.
  • In global projects, understanding cultural aspects and impacts is critical to successful project management. Resource management, team working norms and even the activities must be adjusted to location and culture.

Change Management Framework

Prosci’s ADKAR® framework is widely known as a model that creates a powerful internal language for individual change and gives leaders a framework for helping people in their organization embrace and adopt changes.

Actions to Support Change
  • The project organization, the business and the world are constantly changing and evolving. 
  • Supporting change as the organization progresses from one way of doing things or understanding to another level requires patience and compassionate mentoring. 
  • Making the change to an agile operating system can be frightening for team members who are accustomed to a more deliberate style of planning and delivering, but it is essential for enabling a change-centered culture.
  • The most high-performing teams remain adaptable in the face of dynamic change. 
  • Remember, the skill set you and your project team hold, or utilize, today may be obsolete or limited tomorrow, especially in a digital world.

Leadership needs to know how to bridge the gap between strategy and execution. Here are few things that leadership and project managers can leverage:

  • A North Star statement articulates the vision and strategic objectives of a transformation – this needs to be crisp and concise. OKRs are derived from it.
  • Understand customer insights and global megatrends – similar to what the PESTLE framework accomplishes, but customer centered. Understand what is impacting your business and driving change
  • Use a flat, adaptable cross-functional transformation operating system – Rapid response teams and savvy project professionals who can execute transformation strategy empower the change, not a hierarchical structure
  • Use volunteer champions from inside your organization to drive the transformation – using external consultants doesn’t ultimately benefit the organization as much as employees who internalize and advocate for the change

Aim for Inside-Out Employee Transformation to transform mindsets and aspirations – changing culture starts with changing mindsets and empowering individuals—This is similar to the ADKAR approach.

Topic E: Project Governance

Project governance is the realm of experienced or senior project managers and constitutes the fifth topic of Business Environment. Nevertheless, it’s important to know how your projects are supported by the organization and the relationship between organizational governance and value delivery.

Project governance is most likely in place before you begin work, having been established by either the PMO or aligned with the overall governance policies of the organization.  

A project manager may need to adjust the governance structure for an individual project, based on constraints and other project oversight requirements.

One key area often reviewed by a governance board involves the budget – especially when the costs exceed the benefits or defined tolerances in the various subsidiary management plans.

Governance in Adaptive Projects
  • Agile-based methodologies offer clear governance benefits to stakeholders. 
  • For example, sprint outputs are clearly defined and releases have specific dates, giving a clear roadmap and view of what the project aims to achieve.
  • They offer governance, compliance and “real-time” monitoring of a project output through daily standups. 
  • Agile-based methodologies document outputs and expectations. 
  • An iterative approach can identify value-based outputs more quickly and with a lesser long-term resource commitment than a predictive approach.
  • Within an organization there may be separate or combined committees to provide support to the project manager.
  • The governance board often provides oversight to the project objectives, performance and adherence to project policies and procedures.
  • The steering committee often provides input for key decisions which have been escalated to this body.
  • Some agile projects use an intermediary governance board to liaise between the project and organizational governance. 
  • Such an arrangement is typical in agile-based projects, especially those using Scrum or SAFe®.

Project teams and project managers are given authority to act on change and issues. The scope of this authority is determined by the organization, through the PMO or, alternatively, the authority that manages programs or portfolios.

Governance and Checkpoints

A major difference in life cycles and development approaches is the possible decision at the end of a phase or work period. 

While predictive projects will review the work and make one of three decisions to continue to the next phase, continue with modification or end the project, the adaptive life cycle rolls the review into the next iteration or sprint, which we can think of as a phase. This process continues, guided by the customer’s acceptance criteria or some statement of expectation — minimum viable product (MVP), minimum business increment (MBI) or definition of done (DoD) — until a unit of value can be delivered.

The life cycle used depends on the organization’s governance policies and tolerances for risk, change and other factors, as well as the importance given to stakeholder or customer inputs, and the type of work being performed.

Proper governance enables project managers and teams to be able to make clear decisions about continuing or discontinuing projects.

Topic F: Project Compliance

Project Compliance is the sixth and final topic in the Business Environment section of the PMI authorized PMP Exam Prep. Compliance requirements must be understood and prioritized as the most important to deliver for a project. Noncompliance is one of the highest-level risks in a project.

During a project, compliance requirements may change. The onus is on the project team to be aware and proactive about compliance.

  • Compliance requirements are a part of your stewardship of a project — that is the responsibility you undertake to care for the health of the project you lead.
  • Stewardship is one of the project management principles named and discussed earlier in this lesson.
  • Compliance is related to project quality and to the political, business and industrial contexts of your project’s product or service. 
  • Whatever they are, you are in charge of  ensuring that your project activity and outcomes are aligned with legal or regulatory standards, as necessary.
  • Compliance is associated with both quality and procurement activities in a project.
Compliance Threats

In addition to understanding compliance requirements, the project team needs to understand where compliance-related project threats come from so they can be identified. 

Before a project begins, you should have some awareness of the compliance knowledge in your organization. 

Some questions to ask regarding external legal or regulatory requirements include:

  • Where/who in the organization handles compliance? This may be a project stakeholder.
  • What legal or regulatory requirements impact the organization? Examples include workplace safety, data protection, or professional association memberships
  • What is the organization’s quality policy? If it does not have one, you will have to create one for the project. This is discussed in Lesson 5.
  • Are the team and stakeholders aware of compliance matters? Ask them. This can be a simple and effective way to know what level of compliance knowledge you are dealing with.
Treat Compliance as a highest priority risk

This point is critical to anyone leading a project. 

Noncompliance is one of the most serious risks in a project and in organizations. It should be identified as the highest priority on the risk register, or on a dedicated compliance register, if your organization uses one.

Quality audits, tracking and management, validation of deliverables — these are all processes in which you will examine compliance in your project. 

  • Simply put, a project needs to follow quality and its legal and regulatory landscape. Anything less represents noncompliance, which poses serious consequences.
  • Document compliance needs and risks. Ensure this always stays current.
  • The quality policy is often overlooked on projects, but it’s your responsibility to check that one is present. It is part of your role as steward of the project.
  • A designated stakeholder, or group of stakeholders, should be accountable for each compliance requirement in your project and authorized to sign off and approve compliance requirements. If the PMO or organization has a compliance council, it would be wise to engage them early and connect with them as a project stakeholder.
  • Auditing is an effective means of ensuring compliance. 
  • Lastly, you and the team, as project stewards, are the last line of defense against noncompliance.

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