PMP : What is a Project Charter?

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We are publishing series of articles on PMP topics to help the PMP exam preparation. In this article we are going to explain you what are the best approaches and methods for choosing a right project for the organizations.

PMP Exam ; What is a project charter?

Prior to a project initiation, there are number of factors which affect its idea of existence.  The decision to initiate a project is based on several activities. A mandatory list of those activities you could find below:

  • Conception – idea of the project, which certainly leads up to creating a business need. In simple words we have figured out ‘We need (something) to resolve ‘x’ problem. We have conceived the idea by establishing our problem and a prospect solution on a high level.
  • Project Business Needs – Why do we need the project? We detail and document the established problem and relate it with our business. This is a High Level scope documentation/project definition and alternatives to provide resolution to our established problems. How does this project cater to our business need?
  • Project Business Case – A business case document lists all the business related information for the sponsor and other senior stakeholders. It includes the details on Financial Investments needed on the project, the market status and opportunity that can be tapped, Payback period, Net Present Value, and other financial Metrics (we will be talking about it in our soon coming articles, so stay tuned!).
  • Presenting the business case to the sponsors and board members, and all stakeholders who fall high on Power and Influence grid.

So, before I begin talking about the formal authority on a Project, I mention these above listed factors for a reason. These factors give us a perspective of how crucial just the idea of a project is to an organization, even before it has initiated.

So we can well imagine once the project has been initiated, how it affects every stakeholder, positively or negatively.  It means that every time a small or a big decision is made on a project, any stakeholder could question the authority of the Project Manager and could raise questions. He or she could influence as per there power, in getting the decision changed, to one that suits them.

This should not happen in a Project, at least not often and not as long as the Project is moving towards a serious failure, or unless the project Manager himself has requested interference seeking some major cost associated concern.

There is a reason why a Project Manager is assigned to a Project. It’s a Project Manager’s responsibility and accountability to make big and small decisions, to run a Project. We should let him/her do his job with authority. In order to have a complete authority on his/her project, a Project Manager goes through the initiating process of ‘Develop Project Charter’.

What is  a Project Charter?

A Project Charter, as per the PMBOK 5th Edition guide, can be defined as the document issued by the sponsor/initiator of the project that formally authorizes the existence of the project and provides the Project Manager with the authority to apply organizational resources to Project Activities. (Std. Def.)

A project charter can be created by anybody who the project sponsor(s) and/or the initiator chooses to create it, alternatively it can also be the Project Manager who creates the charter on behalf of the sponsor.  And however created, what matters is the authority to authorize, which means it can only be signed and/or co-signed  by the sponsor(s) or the initiator approved by the sponsor(s).  So, it clearly indicates that the Project Manager does not initiate the project.

The Project Charter ultimately ties the project to the organizational strategy and operations.  Besides, authorizing the project manager, a charter also identifies who the stakeholders on the Project are.  It further establishes that the project will clearly correspond to the ‘Enterprise Environmental Factors’ (EEF) of the organization.

As per the PMBOK 5th Edition, the process of ‘Develop Project Charter’ has the following inputs:

  • Project Statement of Work – A project SOW describes product or service the project is expected to deliver. It comprises of the description of Business Need (explained briefly in the initial section of this article), the Product Scope Description, and how it’s Strategic Plan aligns to the organization.
  • Business Case –A Business case is used to determine if the investment being made in the project is worth the time and money. It identifies financial and non financial metrics to show evidence of value to the organization.
  • Agreement/Contract – A contract comes in picture for projects where an external team/organization is involved. When we are outsourcing some product or services, or when performing some work for another organization, an agreement plays a major role in determining the terms to which both parties with work and deliver. Sometimes one business unit within an organization may be seeking services from another business unit of the same organization. In that scenario too some basic terms can be listed as an agreement between them.
  • Enterprise Environmental factors (EEF) – EEF indicates how the internal and external factors like regulations, standards and compliance, market status, human resource capabilities and organizational structure, etc. will affect the project and how will the project respond to it.
  • Organizational Process Assets (OPA) – OPA is the repository that keeps project documentations from past projects, Lessons learned from past projects, templates of forms/reports and other documentation, intranet sites information, procedures, policies and standards all in one place as a reference for every other project being carried out in the organization.

While the Charter is being created, certain tools and techniques could help us in producing an elaborate good quality result and a thorough document. Most important tool used in developing the Project charter, as per PMBOK 5th edition, is Expert judgment.  

Expert Judgment is based upon the inputs from expertise of certain individuals in the same field/domain, in which you are intending to carry out your project. The expertise could be from specialized education, knowledge & research, skill, experience, or training.  

Other tool as per PMBOK 5th edition is Facilitation techniques. Some examples of these techniques include but are not limited to:

  • Meeting and discussions,
  • Brainstorming,
  • Conflict Resolution and Problem solving (mostly on the terms of agreement, investment requirements and scope of work)

The output of Develop Project Charter process is clearly the ‘Project Charter’ and this is how the Project Manager acquires authority over the project.

A typical list of items a Project charter includes, but are not limited to, are:

  • Project Business Justification (Describing the problem with Business Perspective and list of business goal(s) being targeted.)
  • Project Objectives (Describing the project from the end result, goal and deliverable perspective)
  • High Level Project Description (Describing the product or service)
  • Project High Level Requirements (High level actions and resources required to carry out the project and achieve the end result)
  • Assumptions and Constraints (List of assumptions that were made while deciding the project must get initiated; and list of constraints that we believe could impact the project in any way)
  • Contract Requirements (Contract and Procurement requirements and important details, if any)
  • Success Criteria (When do we know the project is a success)
  • Key Stakeholder List (Established list of all the known entities, who will be impacted by the success or failure of the project)
  • Designated Project Manager and Authority Level description
  • Summary Milestones
  • Business Case
  • Macro Level Cost/Budget Estimates
  • Authority sign off – (Sponsor’s/initiator’s Signature)

Practice Questions

1. Which of the following is not a part of Project SOW?

  1. Business Need
  2. Product Scope of Description
  3. Strategic plan
  4. Brainstorming

Answer. D.

2. Develop Project Charter is a process of authorizing the PM through the following document?

  1. Project SOW
  2. Project Business Case
  3. Project Charter
  4. Agreement

Answer. C.

3. A project manager is employed by a software company and is responsible for the creation of the implementation plan. One of the first things that the project manager for this project should do is to write a:

a. Work breakdown structure
b. Budget baseline
c. Project charter
d. Project plan

Answer. C – All the other three come after the project charter is written, approved and the project manager authorized to get started on the project.

Summary

In this article we have explained about the factors that are considered before initiating the project, what is a project charter documents and how it give authority to the project managers. Project Charter document is one of the important document that every project manager to know about it.

I hop this article would have given good idea on project charter concepts that are tested in PMP exam. However, this is only the basic details and you have to go through the complete chapter in PMBOK to get more understanding on the concepts.

If you have any questions, please write it in the comments section.

About Pavan Gumaste

Pavan Rao is a programmer / Developer by Profession and Cloud Computing Professional by choice with in-depth knowledge in AWS, Azure, Google Cloud Platform. He helps the organisation figure out what to build, ensure successful delivery, and incorporate user learning to improve the strategy and product further.

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1 thought on “PMP : What is a Project Charter?”

  1. Deepak Chaudhary

    Hi, Thanks for sharing article on Project charter. It’s highly beneficial for all project managers & teams and also who are preparing for PMP examination.

    Reply

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