strategic management and project selection

a project is an allocation of capital and human resources to achieve time-specific objectives. many companies are “managing organizations by projects,” using projects as a way to achieve business goals and strategic plans. when selecting between prospective projects, assess how each project ties to the organization’s goals and objectives. base selections on the value each project lends to the organization’s strategic plans. the process of evaluating individual projects or groups of projects for the purpose of choosing which to implement might include a number of factors.




top management might develop a matrix of objectives for projects that are expressly based on the organization’s business goals and strategies. a project should be assessed for realism, capability and cost. thirty percent of all projects end midstream and half of completed projects end an average of 200 percent over schedule and over budget, according to a 2001 study by the centre for innovative management. vanessa cross has practiced law in tennessee and lectured as an adjunct professor on law and business topics. she has also contributed as a business writer to news publications, including the “chicago tribune,” and published in peer-reviewed academic journals. in journalism, a juris doctor and an ll.m.

the explosively rapid adoption of such a powerful tool as project management to help organizations achieve their goals and objectives is certainly awesome. it is not common to discuss project selection, the construction of a project portfolio, and similar matters in any detail in elementary texts on project management. the resulting system provided a set of checks and balances for both bc/bs executives and project managers. project selection is the process of evaluating proposed projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved. the construction firm is considering a set of potential projects to perform for clients outside of the construction firm itself. it is important to remember that the qualities of a project may be represented by numbers, and that subjective measures are not necessarily less useful or reliable than objective measures. careful analysis of a potential project is mandatory for profitability in the construction business. in this case the project is suggested by a senior and powerful official in the organization. senior management of the funding organization then examines all projects with positive recommendations and attempts to construct a portfolio that best fits the organization’s aims and its budget. to integrate sustainability into the organization’s decision-making requires the appointment of a senior manager with responsibility for the task. the ratio of these quantities is the number of years required for the project to repay its initial fixed investment. the project schedule calls for benefits to begin in the third year, and to be up-to-speed by the end of that year. in general, the net present value models are preferred to the internal rate of return models. the concept of a real option is that the investment leads to opportunities that would not have been available otherwise. the major disadvantages are that it assumes all criteria are of equal importance and it allows for no gradation of the degree to which a specific project meets the various criteria. the column of scores is summed, and those projects with a total score exceeding some critical value are selected. the weight of each criterion can be interpreted as the “percent of the total weight accorded to that particular criterion.” a special caveat is in order. assume that we have chosen the criteria and weights shown in table a to be used in our evaluations. it is useful to note that if one uses a weighted scoring model to aid in project selection, the model can also serve as an aid to project improvement. a “yes” answer to that question “selects” for funding the partially completed project from the set of all partially finished and not-yet-started projects. this process is not just a one-time exercise, however; the process continues as the stages of the project are executed so that at any point in the project, management can step in and terminate it if conditions change and the project looks less promising. first, they allow the multiple objectives of all organizations to be reflected in the important decision about which projects will be supported and which will be rejected. the impact of imperfect knowledge on the way a project is organized and on its budget and schedule will be discussed in the chapters devoted to those subjects. first, there is uncertainty about the timing of the project and the cash flows it is expected to generate. project portfolio management is briefly defined and compared to project and program management in chapter 1 of pmbok®. the first task in this step is to list the goals of each existing and proposed project: what is the mission, or purpose, of this project? be sure to update the data for ongoing projects and not just use the data from the previous evaluation. the fewer projects that need to be compared and analyzed, the easier the work of the council. the former are commonly more difficult to assess and a reconsideration based on more familiarity with the project profiling process and other project evaluations may suggest interchanging the priority of neighboring projects. as this happens, it is important to note that the council will have to concern itself with the reliability and accuracy of proposals competing for limited funds. of course, the process will need to be repeated on a regular basis. developing a list of possible criteria for cutting or eliminating the funding for a project is complicated. the proposal begins with a general description of the problem to be addressed or project to be undertaken. if the problem is complex, the major subsystems of the problem or project are noted, together with the organization’s approach to each.

when preparing this and the other sections of a proposal, the proposing group should remember that the basic purpose of the document is to convince a potential funder that the group and the project are worthy of support. model a way of looking at reality, usually for the purpose of abstracting and simplifying it, to make it understandable in a particular context. ms. portillo is pleased with the construct of the model and feels that it includes all of the factors relevant to the drop/add decision. the vice-president has developed a project selection model and will use it in presenting the project to the president. a guide to the project management body of knowledge, 4th ed. financial, strategic, and other data are given concerning the projects in order to facilitate the analysis needed to make a final investment recommendation to the board of directors. the proposals included a brief project description, a financial analysis, and a discussion of strategic or other qualitative considerations. management had relied on debt financing significantly in the past few years to sustain the firm’s capital spending and dividends during a period of price wars initiated by pan-europa. for consideration, each project had to be sponsored by one of the managers present. becoming frustrated with what he perceived to be his lack of influence in the organization. the cost of this plant would be €25 million and would entail €5 million for working capital. this project would be classed in the new-product category of investments. overall cost savings and depreciation totaling €2.75 million per year for the project were expected to yield an irr of 8.7 percent. the eastward expansion would have to be supplied from plants in nuremberg, strasbourg, and hamburg. this project would be classed in the efficiency category of proposals. the projects seem unlinked to a coherent strategy, and people are unaware of the total number and scope of projects. thus, the system of projects is itself a project, with the smaller projects being the activities that lead to the larger project (organizational) goal. in this way, upper managers and project managers develop the joint vision that is so necessary for implementation of strategy. this is a crucial step that determines if the rest of the project selection process can be successful. because the types of projects and the objectives within categories may be quite different, develop unique criteria for each category or have a core set of criteria that can be modified. it is also helpful to set thresholds or limits for projects that will be considered for the plan. weighting of criteria is the technique that can optimize and determine the best of the best. the team needs to constantly apply screening criteria to reduce the number of projects that will be analyzed in detail. the next part of gathering data is to estimate the time and resources required for each potential and existing project. one assessment about the quality of projects in a portfolio is to look at the rejects. documenting all the findings and supportive data using a common set of descriptive factors makes it easier to compare similar factors across projects. the team may not be sure which markets or technologies will grow, so buy an “option” and make a small investment to investigate the possibilities. the plan of record (por) is both a process and a tool used by some organizations at hp to keep track of the total list of projects. the challenge for hp and many companies is to “master both adaptive innovation and consistent execution… again and again and again… in the context of relentless change…. because of the interactions among many factors affecting a complex decision, it is essential to identify the important factors and the degree that they affect each other before a clear decision can be made. if the criterion on the side is preferred to the one on the top, put a 1 in the cell. implementing it into the heart and soul of all people in the organization is another story. start with one of the more pressing issues and use the general concepts of this model to address it. the power of using criteria that are tightly linked with strategy and known by everyone in the organization is the mitigating effect it has to guide behavior in constructive ways. the difference between this amount and the €40 million requested is a positive operating cash flow of €5 million in year 1 expected from the normal course of business.

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