Organization Strategy and Project Selection

1. Organization Strategy and Project Selection Chapter 2

2. Objectives of Chapter • To understand the primary objectives of PM • To understand the strategic management process and how projects are incorporated • To understand and calculate project assessment tools

3. Why Project Managers Need to Understand the Strategic Management Process • Changes in the organization’s mission and strategy • Project managers must respond to changes with appropriate decisions about future projects and adjustments to current projects. • Project managers who understand their organization’s strategy can become effective advocates of projects aligned with the firm’s mission.

4. Projects and Strategy • Mistakes caused by not understanding the role of projects in accomplishing strategy: • Focusing on problems or solutions with low strategic priority. • Focusing on the immediate customer rather than the whole market place and value chain. • Overemphasizing technology that results in projects that pursue exotic technology that does not fit the strategy or customer need • Trying to solve customer issues with a product or service rather than focusing on the 20% with 80% of the value (Pareto’s Law). • Engaging in a never-ending search for perfection only the project team really cares about.

5. The Strategic Management Process: An Overview • Strategic Management • Requires every project to be clearly linked to strategy. • Provides theme and focus of firm’s future direction. • Responding to changes in the external environment—environmental scanning • Allocating scarce resources of the firm to improve its competitive position—internal responses to new programs • Requires strong links among mission, goals, objectives, strategy, and implementation.

6. Strategic Process

7. Goals must include 5 necessary SMART attributes: • S • Specific • Measurable • Attainable • Relevant • Time bound M A R T

8. Project Portfolio Management Problems • The Implementation Gap • The lack of understanding and consensus on strategy among top management and middle-level (functional) managers who independently implement the strategy. • Organization Politics • Project selection is based on the persuasiveness and power of people advocating the projects. • Resource Conflicts and Multitasking • Multiproject environment creates interdependency relationships of shared resources which results in the starting, stopping, and restarting projects.

9. Benefits of Project Portfolio Management • Builds discipline into the project selection process. • Links project selection to strategic metrics. • Prioritizes project proposals across a common set of criteria, rather than on politics or emotion. • Allocates resources to projects that align with strategic direction. • Balances risk across all projects. • Justifies killing projects that do not support strategy. • Improves communication and supports agreement on project goals. EXHIBIT 2.2

10. A Portfolio Management System • Design of a project portfolio system: • Classification of a project • Selection criteria depending upon classification • Sources of proposals • Evaluating proposals • Managing the portfolio of projects.

11. A Portfolio Management System • Selection Criteria • Financial: payback, net present value (NPV), internal rate of return (IRR) • Non-financial: projects of strategic importance to the firm. • Multi-Weighted Scoring Models • Use several weighted selection criteria to evaluate project proposals.

12. Financial Models • The Payback Model • Measures the time the project will take to recover the project investment. • Uses more desirable shorter paybacks. • Emphasizes cash flows, a key factor in business. • Limitations of Payback: • Ignores the time value of money. • Assumes cash inflows for the investment period (and not beyond). • Does not consider profitability.

13. Financial Models (cont’d) • The Net Present Value (NPV) model • Uses management’s minimum desired rate-of-return (discount rate) to compute the present value of all net cash inflows. • Positive NPV: project meets minimum desired rate of return and is eligible for further consideration. • Negative NPV: project is rejected.

14. Assessment tools

15. Identify and Select the problem • Sources • Press Ganey • Studer Group • SERVQual surveys • Voice of Customer • Observation of processes

16. QFD – Voice of the Customer

17. Four Steps of QFD

18. Solution Assessment Tool

19. How it Works • Clarify what we mean by “impact” and “do-ability”. • Explain how we will use a matrix to weight suggestion “do-ability”. • Each suggestion has to be evaluated by group for consensus in scoring. • Suggestions should be plotted on the Solution Assessment Matrix. • Challenge these final results by having the group review the plot and concur or disagree with how the suggestions fell on the plot. Spend time discussing any disagreements.

20. Solution Assessment in Action 1= poor score. Ex. Score a 1 in the cost column if suggestion would be costly. 4 = good score. Ex. Score a 4 in the risk column if suggestion has no risk.

21. Solution Assessment in Action

22. Solution Assessment in Action Based on the plot results, highest priority is given to implementing suggestion #’s 6, 4, & 10.

23. Histogram Histogram for a frequency distribution based on quantitative data is very similar to the bar chart showing the distribution of qualitative data. The classes are marked on the horizontal axis and the class frequencies on the vertical axis. The class frequencies are represented by the heights of the bars.

24. Histogram Chart • Use if you want to determine which category of item, you focus your efforts on. Study current conditions – problem identification

25. Pareto Chart • What Questions The Pareto Chart Answers • What are the largest issues facing our team or business? • What 20% of sources are causing 80% of the problems (80/20 Rule)? • Where should we focus our efforts to achieve the greatest improvements? Identify Problems

26. 5 Whys Method • Benefits • Help identify the root cause of a problem • Determine relationship between different root causes of a problem • One of the simplest tools; easy to complete without statistical analysis

27. Cause Chain Contrib . Cause Contrib . Cause Direct Event Cause Contrib . Root Cause Cause

28. How to complete the 5 Whys • Write down the specific problem. • Ask Why problem happens and write down the answer • If the answer doesn’t identify root cause then repeat. • Keep repeating until team is in agreement that problem’s root cause is identified.

29. Line Chart – observe the trend for call times over time. Suppose call times were reduced by a process improvement. Case B Case C Process improvement

30. Nonfinancial Strategic Criteria • To capture larger market share • To make it difficult for competitors to enter the market • To develop an enabler product, which by its introduction will increase sales in more profitable products • To develop core technology that will be used in next-generation products • To reduce dependency on unreliable suppliers • To prevent government intervention and regulation

31. Any Questions?