CHAPTER 2

Needs Identification

LEARNING OBJECTIVES
Recall that the project life cycle consists of four phases: identifying needs, proposing a
solution, performing the project, and terminating the project. This chapter focuses on needs
identification, the first phase of the project life cycle. Based on this chapter, the students
should become familiar with:

• identifying needs and selecting projects

• developing requests for proposal
• the proposal solicitation process

TEACHING STRATEGIES
1. Have the students read the case studies in class and answer the questions in groups
of three or four. Next, select five participants to act out the group activity. This is
an excellent way to stimulate class discussion and interest. This is a good case
study to do right before you lecture on this chapter and then again after you lecture
on the chapter. The difference in responses “before” and “after” will reinforce the
importance of the topics covered.
2. Ask your students if they have ever seen an RFP or written an RFP.
3. Ask your students to identify situations in the real world that would require an
RFP. Ask them to describe in detail what the RFP might look like.

LECTURE OUTLINE

1. Real-World Examples

A. Vignette: Successful Messaging Services in Poland

 Polska Telefonia Cyfrowa (PTC) is Poland’s leading wireless services

provider, and maintains Era, the largest mobile network in Poland.
 Era serves more than seven million subscribers and has almost
37 percent share of the total Polish market.
 Several years ago, it introduced Eranet (a basic e-mail service for Era)
powered by Sun Internet Mail Server (SIMS), which is equipped with

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 short messaging service (SMS) applications. The messaging system is
designed to notify mobile subscribers by cell phone text messages
when they have new e-mail. PTC decided to expand its offerings to
customers by delivering two-way SMS services.
 A detailed needs assessment was a key to this successful initiative. Sun
Services helped to map out all of the requirements for the Eranet
project from the beginning and remained involved at every stage.
 Since PTC intended to grow its subscriber base and e-mail volume
quickly, solutions needed to consider security, scalability, and
availability.
 The project was completed in just 12 months, which was nearly 50
percent earlier than anticipated.
 With the implementation of the new Sun e-mail software, PTC was
able to grow its subscriber base by approximately 80 percent in one
year, with the anticipation of further growth.
 This will enable the company to achieve 100 percent payback on the
new messaging infrastructure in only two years.

B. Vignette: Red Light, Green Light

 Catherine Aczel Boivie joined Pacific Blue Cross in 2003 as the Vice
President of Information Technology. When she began, she and the
CEO agreed on two principles:
 Technology has no value alone, and
 Technology management needs to focus on enabling business
as opposed to operations.
 Boivie made it her personal mission to turn the IT department into a
business enabler.
 Pacific Blue Cross created a Balanced Scorecard that displays and
measures the organization’s performance from the following six
perspectives: qualitative, quantitative, infrastructure, clients, people,
and community-related goals.
 After compiling a list of all projects currently in progress, Boivie
introduced the project management office (PMO) function.
 A report she called the Traffic Light was implemented to allow the
PMO to regularly report project status to IT management, executive
committees, and the board of directors.
 During Boivie’s second year at Pacific Blue Cross, she introduced a
gating process to govern her projects.
 Finally, a change review board was implemented to review all change
requests and prioritize how the proposed changes enable the business.

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  While her company still faces a number of challenges, Boivie is
confident that the project management processes she put in place will
help ensure that each project is focused on advancing business goals,
and can be completed on time and within budget!

2. Needs Identification
A. Needs identification is the initial phase of the project life cycle. Display and
briefly review Figure 2.1.
B. It starts with the recognition of a need, problem, or opportunity and ends with the
issuance of a request for proposal (RFP).
C. Before a request for proposal is prepared, the customer must clearly define the
problem or need. This may mean gathering data about the magnitude of the
problem.
D. It is important to try to quantify the problem so as to determine whether the
expected benefits from implementing a solution outweigh the costs of conducting
the project and, if so, by how much.
E. Once the magnitude of the benefit or improvement has been estimated, the
customer can determine the budget for a project to implement an improvement.
F. Businesses have a limited amount of funds available and, therefore, usually want
to spend those funds on projects that will provide the greatest return on
investment.
G. Even in a non-business example, such as staging a town’s Fourth of July
celebration, there is usually a budget within which the project must be
accomplished.
H. There are often situations where a company has identified several needs but has
limited funds and people available. In such cases, the company must select the
project(s) with the greatest benefit for the cost expended.

3. Project Selection

A. Project selection involves evaluating various needs or opportunities, and then

deciding which of those should move forward as a project to be implemented.
B. The benefits and consequences, advantages and disadvantages, plusses and
minuses of each opportunity need to be considered and evaluated. They can be
quantitative and qualitative, tangible and intangible.
C. The steps in project selection are to:
1. Develop a set of criteria against which the opportunity will be evaluated.
For example:

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  Alignment with company goals
 Anticipated sales volume
 Increase in market share
 Establish new markets
 Anticipated retail price
Sometimes the opportunities and needs may not all be similar.

2. List assumptions that will be used as the basis for each opportunity. For
example, if one opportunity is to build an on-site day care center for
children and elderly relatives of company employees, one assumption
might be that the company would be able to obtain a bank loan to build
such a center.
3. Gather data and information for each opportunity to help ensure an
intelligent decision regarding project selection. For example, it may be
necessary to gather some preliminary financial estimates associated with
each opportunity, such as estimated revenue projections and
implementation and operating costs.
In addition to gathering hard data, it may also be necessary to obtain other
information regarding each opportunity. This could include getting
information from various stakeholders who would be affected by the
opportunity.
4. Evaluate each opportunity against the criteria. Once all the data and
information has been collected, analyzed and summarized for each
opportunity, it should be given to all the individuals who are responsible
for performing the evaluation. It is beneficial to have several individuals
involved in the evaluation and selection decision in order to get various
viewpoints.
It is advisable to develop a project evaluation form which would list the
criteria and provide space for comments and a rating box for each criterion.
Each evaluation and selection committee member could then complete a form
for each opportunity prior to coming to a meeting of the entire committee.

4. Preparing a Request for Proposal

A. The purpose of preparing a request for proposal is to state, comprehensively and in
detail, what is required, from the customer’s point of view, to address the
identified need.
B. A good RFP allows contractors or a project team to understand what the customer
expects so that they can prepare a thorough proposal that will satisfy the
customer’s requirements at a realistic price.

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 C. It should be noted that in many situations a formal RFP might not be prepared;
instead, the need is communicated informally—and sometimes orally rather than
in writing. This is often the case when the project will be implemented by a firm's
internal staff rather than by an external contractor.
D. Following are some guidelines for drafting a formal request for proposal to
external contractors:
1. An RFP must provide a statement of work (SOW). An SOW deals with
the scope of the project, outlining the tasks or work elements the customer
wants the contractor or project team to perform.
2. The RFP must include the customer requirements, which define
specifications and attributes. Requirements cover size, quantity, color,
weight, speed, performance, and other physical or operational parameters
the contractor’s proposed solution must satisfy. The customer may also use
these requirements as acceptance criteria.
3. The RFP should state what deliverables the customer expects the
contractor or project team to provide. Deliverables are the tangible items
that the contractor is to supply. Deliverables could include periodic
progress reports or a final report as well as a final product.
4. The RFP should list any customer-supplied items.
5. The RFP might state the approvals required by the customer.
6. Some RFPs mention the type of contract the customer intends to use. It
could be fixed price, in which case the customer will pay the contractor a
fixed amount regardless of how much the work actually costs the
contractor. (The contractor accepts the risk of taking a loss.) Or the
contract might be for time and materials. In this case, the customer will pay
the contractor whatever the actual costs are.
7. An RFP might state the payment terms the customer intends to use. The
customer may specify progress payments or pay when the entire project is
finished.
8. The RFP should state the required schedule for completion of the
project. It might state simply a required completion date or it might give a
more detailed schedule.
9. The RFP should provide instructions for the format and content of the
contractor proposals. Instructions might state the maximum number of
pages, the number of details the customer wants the contractor to show
regarding the costs, and other specifications.
10. The RFP should indicate the due date for proposals.

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 11. An RFP may include the evaluation criteria that will be used to evaluate
proposals from competing contractors. Criteria might include the
following:
a. the contractor’s experience with similar projects
b. the technical approach proposed by the contractor
c. the schedule
d. the costs
12. In rare cases an RFP will indicate the funds the customer has available to
spend on the project. Contractors can then submit proposals that are
appropriate to that level of funding.

5. Soliciting Proposals
A. Once the RFP has been prepared, the customer solicits proposals by notifying
potential contractors that the RFP is available.
B. One way for customers to do this is by identifying a selected group of contractors
in advance and sending each of them a copy of the RFP.
C. Another approach to soliciting proposals is to advertise in certain business
newspapers and on websites that the RFP is available. For example, federal
government organizations advertise their RFPs in Commerce Business Daily.
D. Business customers and contractors consider the RFP/proposal process to be a
competitive situation.
E. Customers should be careful not to provide to one or more of the contractors
information that is not provided to all interested contractors.
F. Business or government customers may hold a bidders’ meeting to explain the
RFP and answer questions from interested contractors.
G. Not all project life cycles include the preparation of a written RFP. Some bypass
the proposal steps and move right into planning and performing the project.
H. There are other projects in which requirements are not written down in a formal
RFP, but are communicated verbally to several providers or suppliers
(contractors).
I. Although projects can be businesslike or informal, they all start with the
identification of a need, problem, or opportunity.

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6. Critical Success Factors
A. The need must be clearly defined before preparing a request for proposal (RFP).
B. When selecting a project from among several needs or opportunities, the decision
should be based on which project will provide the greatest overall benefits
compared to its costs and possible consequences.
C. Having a well-understood evaluation and selection process and a well-rounded
committee will increase the chances of making the best project selection decision.
D. A good RFP allows contractors or a project team to understand what the customer
expects so they can prepare a thorough proposal that is responsive to the
customer’s needs and requirements.
E. A request for proposal should include a statement of work, customer
requirements, expected deliverables, and the criteria by which the customer will
evaluate proposals.
F. An RFP should provide instructions for the format and content of contractor
proposals so the customer will be able to make a consistent and fair comparison
and evaluation of all the proposals.
G. Customers must be careful not to provide information to only some of the
contractors because it would give these contractors an unfair competitive
advantage in preparing their proposals.

QUESTIONS

1. Why is it important to do a thorough and detailed job of needs identification?

It is important to thoroughly study the problem or opportunity in order to
develop a quality RFP and/or quality solution. If the need isn’t clearly defined,
you can’t expect the proposed solutions to be clearly defined either.
2. Describe a situation in your life in which you performed needs identification.
Answers will vary from student to student.
3. Why is it important to select the right project before you begin working?
In reality too many projects are started that should never have been started. It is
wise to take the time to decide which needs or opportunities should go forward
as a project before you start working.
4. Describe how a business selects which projects to work on when there are
numerous projects that could be done.
A four-step process is recommended:
a) Develop a set of criteria against which the opportunity will be evaluated.
b) List assumptions that will be used as the basis for each opportunity.
c) Gather data and information for each opportunity
d) Evaluate each opportunity against the criteria.

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5. Give examples of situations in which a business might develop a request for
proposal.
There are many possible answers to this question. Some examples might
include an RFP for a new billing system, an RFP for a comprehensive
management training program, an RFP for a new heating system for a major
office building, etc.
6. Give examples of situations in which an individual might develop a request for
proposal.
There are many possible answers to this question. Some examples might
include an RFP for a new in-ground pool, a new deck, or a new house. These
may or may not be written.
7. Why is it important for a business to try to quantify the expected benefits of
implementing a solution to a problem?
If a business did not do this in advance, they might find out that the costs of the
solution exceed the benefits. In addition, because most businesses have
limited resources, they must prioritize their projects based on the expected
benefits.
8. What should be contained in a statement of work?
A statement of work should define the scope of the project and outline the
tasks or work elements to be performed. The SOW should be very precise.
9. What is meant by customer requirements? Why must they be precise?
The RFP must include the customer requirements, which define specifications
and attributes. Requirements cover size, quantity, color, weight, speed,
performance, and other physical or operational parameters the contractor’s
proposed solution must satisfy.

These requirements must be very precise because this is what the contractor
will use as a guideline as they develop the proposal and/or solution and the
customer may also use it as acceptance criteria.
10. Why would an RFP state the approvals that will be required during the project?
Give some examples.
It is important to state the approvals required during the project so the final
solution matches what the customer expects. Examples would include
reviewing the design specifications for a house before construction begins,
reviewing a prototype user interface for a new software system before coding
begins, etc.
11. Why would a customer give contractors instructions in the RFP to submit their
proposals according to a standard format?
This is done so all proposals have a standard form and are thus easier to
evaluate. If this was not done, for example, one proposal might be 5 pages and
another might be 50 pages. One might include technical specifications and
another might not.
12. Develop an RFP for a real-world project such as landscaping the grounds
surrounding a nearby business office, building a deck for your house, or holding

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 a big graduation celebration. Be creative in specifying your needs. Feel free to
come up with unique ideas for the RFP.
Answers will vary from student to student.

INTERNET EXERCISES
The Web Exercises can be a very valuable part of this course. You should assign these
exercises to your students as homework or complete them with them in a computer lab. The
Web exercises in this chapter involve investigating and evaluating a Request for Proposal
found on the Web.

CASE STUDY # 1 A MIDSIZE PHARMACEUTICAL COMPANY

This case study involves an owner and Chief Executive Officer of a midsize global
pharmaceutical company who states that profits for the year are expected to be $2,000,000
more than anticipated. She asks her three key managers to get together to develop a
prioritized list of potential projects and then to meet with her to “sell” her on their ideas. A
fourth manager also has some ideas for how to use this extra money.

Answers to Case Questions

1. How should Jennifer go about making her decision?

She has identified an opportunity. She has $2,000,000 of unexpected profits

that she would like reinvest in the company. In this case, she is soliciting
proposals from her internal managers. She should state comprehensively, and
in detail, what she expects in the proposals including several of those items
discussed in this chapter (due date for proposals, format required, evaluation
criteria to be used, etc.). In this case, the RFP may or may not be in written
form. She should then evaluate each proposal submitted based on the stated
criteria.

2. What kind of additional data or information should she collect?

Among other things, information on cost and benefits should be collected.

Costs should include one-time and on-going expenses. Additional data such as
specific tasks and timeframes is also needed.

3. What exactly should Jennifer require the others to submit in the way of
proposals?

Each proposal should include the cost and anticipated benefits of the project.
At a minimum, it should also include the tasks to be performed, the resources
used, and a schedule.

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4. What do you think Jennifer should do with the $2,000,000? In explaining your
answer, address the concerns and positions of Julie, Tyler, Jeff, and Joe.

At this point it is too early to tell. Jennifer must evaluate each of the proposals
based on the established criteria and then select the proposal or proposals that
provide the greatest benefit to the company.

Group Activity
This is an excellent way to stimulate class discussion and interest. Take a few minutes and
have some students act it out in class.

1. Select five course participants to play the roles of Jennifer, Julie, Tyler, Jeff, and
Joe. While Jennifer and Joe leave the room, have Julie, Tyler, and Jeff role-play
(preferably in front of the remaining course participants) a meeting in which they
discuss their proposed projects and develop a prioritized list to “sell” to Jennifer.
2. After Jennifer and Joe re-enter the room, have all five participants role-play
(preferably in front of the class) a meeting with Jennifer in which Julie, Tyler, and
Jeff try to sell her on the prioritized list of projects and Joe promotes his agenda.
3. Discuss what took place. What positions did the players take? How was the final
decision made? What was the final decision?

CASE STUDY # 2 TRANSPORTATION IMPROVEMENTS

This case involves a large, mostly sparsely populated county that has a fairly mountainous
terrain. Various road projects are being discussed.

Answers to Case Questions

1. What criteria should Zachary use to evaluate the projects?
Various options can be used as discussed in this chapter. The criteria should
be defined in advance of evaluating the projects.

2. What assumptions should he make?

Assumptions regarding the safety to the entrance outside of Big John’s
superstore
Assumptions about the need to widen and repair Elk Mountain Road
Assumptions regarding County Route 1045 and the bridge

The assumptions need to be evaluated.

3. What data and information should he gather and how should he go about
gathering the data and information?

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 Surveys and various types of research methods could be used to gather data
related to the assumptions in the case study.

4. After he has evaluated each project against the evaluation criteria, how
should he decide the priority of the three projects?

This is a great opportunity to get the class to walk through the four step project
selection process. Split the class into groups and see what they come up with.

Group Activity

Ask each course participant to individually answer the first case question. Then, divide the
course participants into groups of three or four to discuss the case questions. Each group must
select a spokesperson to present its answers to the entire class.

HOMEWORK

1. Have them read the Real-World Vignette about the Successful Messaging Services
in Poland and discuss identified needs and the RFP process. See if they can find
any information about this on the Web.
2. Have them read the chapter and answer all of the Reinforce Your Learning
questions and the questions at the end of the chapter.
3. This is a good time to get your students to start reading some of PMI’s
publications—either on-line or printed. These articles are typically very readable
and might relate to something that interests your students. Have each student read
one such article and prepare a one-page summary. If time permits, have each
student discuss his or her article in class.
4. Have them find a Request for Proposal on the Web and evaluate it against the
guidelines in this book.

26 CHAPTER 2/Needs Identification