Project Selection and Prioritization Chapter 2 Contemporary Project Management Kloppenborg © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter Vignette D. D. Williamson, Louisville, KY How does a truly global company with fewer than 200 associates achieve noteworthy results and market leadership? Founded in 1865 D. D. Williamson is a global leader in non-artificial colors 2004: Company embarked on a new vision to double growth and profitability in five years. Identified the need to improve project management as a key strategy to achieve the vision.
Chapter Vignette D. D. Williamson, Louisville, KY A prioritization matrix of 16 “critical projects” would have senior leadership sponsors and be assigned trained and capable project managers to improve execution 2009: Changes to prioritization process selected no more than five “Visual Impact Projects” (VIPs) to receive high-level focus and attention Results: Large and complicated projects are hitting the strategic target of “on time, on budget and on target” regularly
At the end of this chapter… • Describe the strategic planning process. • Describe the portfolio alignment process. • Itemize strengths and weaknesses of using financial and scoring models to select projects. • Describe how to select and prioritize projects as an outgrowth of strategic planning. • Given organizational priorities and several projects, demonstrate how to select and prioritize projects using a scoring model. • Describe how to secure projects.
Strategic Planning Process • Strategic Analysis • Guiding Principles • Vision • Mission Statement • Strategic Objectives • Flow-down Objectives
Strategic Analysis • Analysis of internal and external environments • SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats) • Elements within the project team’s control • What strengths and weaknesses the organization possesses in itself • Elements over which the project team has little/no control • What opportunities and threats are posed by competitors, suppliers, customers, regulatory agencies, technologies
Guiding Principles • The vision describes the organization of the future • “vivid description of a preferred future” • Require extra effort to be achieved • Often multiyear goals that end in suggesting the need for a new vision • The mission statement provides a mechanism for achieving the vision • “organization’s core purpose, core values”, beliefs, culture, primary business, primary customers
Mission Statement Considerations • Purpose – communicates why an organization exists • Beliefs – what the leaders of an organization stand for • Core values – how decisions will be made and how people will be treated • Culture – how members should act • Primary business areas – what business the organization engages in • Primary customers – which groups of people need to be satisfied
Cincinnati Children’s Hospital Medical Center Vision and MissionVision
Strategic Objectives • Means of achieving the vision and mission • Objective setting occurs annually • Describe short term and long term results • Describe measures of achievement • Effective objectives are SMART • Specific • Measurable • Achievable • Results-based • Time-specific
Flow-down Objectives • How to implement strategic objectives • Objectives may be implemented through ongoing operations • Projects are the primary method for implementing objectives
Portfolio Alignment • Assess organization’s ability to perform projects • Portfolios • Programs • Projects and subprojects
Portfolios • portfolio – “a collection of projects or programs and other work that are grouped together to facilitate effective management of that work to meet strategic business objectives. The projects or programs of the portfolio may not necessarily be interdependent or directly related.” PMBOK® Guide • Organizations require work activities including ongoing operational work and temporary project work • Try to achieve a sense of balance in portfolios • Some large and some small projects • Some high-risk, high-reward projects and some low-risk projects • Some projects that can be completed quickly and some that take substantial time
Programs • program – “a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually. Programs may include elements of work outside of the scope of discrete projects in the program.” PMBOK® Guide Programs last as long as the organization lasts Specific projects within a program are of limited duration Portfolios and programs are managed at a level above the typical project manager
Projects and Subprojects • subproject – “a smaller portion of the overall project created when a project is subdivided into more manageable components or pieces.” PMBOK® Guide A large project may be composed of multiple subprojects The project manager coordinates subprojects and make decisions that are best for the overall project
Reasons for Project Failure • Not enough resources • Not enough time • Unclear expectations • Changes to the project • Disagreement about expectations
Project Alignment • Aligned projects contribute to the organization’s objectives • Align potential projects with the goals of the parent organization
The Project Portfolio • A collection of projects grouped to be collectively managed • Projects are selected to contribute to the organization’s goals • Portfolio alignment identifies, selects, and prioritizes projects to help achieve an organization’s strategic goals
Assess Organization’s Ability to Perform Projects • Do we have a teamwork attitude, free and open communication, creativity, and empowered decision-making? • Do we have a clearly defined project management process? • Do our associates have the right attitudes, skills, and competencies to use the project management process? • Are our leaders at each level willing to take appropriate personal risk?
Assess Organization’s Ability to Perform Projects • Does senior leadership establish a strong leadership foundation? • Do individuals and teams exhibit leadership at their respective levels? • Do we monitor and understand our external environment?
Identifying Potential Projects • People from all levels and all functional areas should participate • Identify twice as many potential projects as the organization has time and resources to perform • Develop a brief description of all potential projects • The “elevator speech” • statement of work – “narrative description of products or services to be provided by the project.” PMBOK® Guide • business case – “provides the information needed from a business standpoint to determine if the project is worth the investment.” PMBOK® Guide
Methods for Selecting Projects • Ensure overall organizational priorities are understood, agreed upon, and communicated • Prioritization considerations include: • What value each potential project brings to the organization? • Are the demands of performing each project understood? • Are the resources needed to perform the project available? • Is there enthusiastic support both from external customers and from one or more internal champions? • Which projects will best help the organization achieve its goals?
Methods for Selecting Projects • Include financial and scoring models • Projects are investments • Three different approaches • Use financial analysis as the primary means of determining which projects are selected • Use financial models as screening devices to qualify projects for a scoring model • Financial justification is one factor in a multi-factor scoring model
Using a Financial Model to Select Projects • Compare expected project costs to expected project benefits • Net present value is the most widely accepted model • Discount the expected future value of project costs and benefits • Subtract the stream of discounted project costs from the stream of discounted project benefits • Result yields the net present value of the potential project
Using a Financial Model to Select Projects • The benefit-cost ratio model • Divide the cash flow by the initial cash outlay • A ratio above 1.0 means the project is expected to profit • The internal rate of return model • Calculate the percentage return expected on the project investment • A ratio above the current cost of capital is considered positive
Using a Financial Model to Select Projects • The payback period • Calculate how many years would be required to pay back the initial project investment • Shorter payback periods are desirable • Financial models ensure that projects make sense from a cost and return perspective • None of the financial models ensure alignment with an organization’s strategic goals
Using a Scoring Model to Select Projects • Develop a list of project selection criteria • How well does this project fit with at least one organizational objective? • How many customers are there for the expected results? • How competitively can the company price the project results? • What unique advantages will this project provide? • Does the company have the resources needed? • What is the probability of success? • What is the expected return on investment?
Using a Scoring Model to Select Projects • Identifying Potential Criteria • Jointly determine what criteria will be used to select projects • Determine mandatory criteria • Are there any situations that dictate a project must be chosen regardless of any other consideration? • Weighting criteria • Give the most important criterion a weight of 10 • Assign other weights based on its importance relative to the most important criterion
Evaluating Projects Based on Criteria • Evaluate one criterion at a time • Rate each project on that particular criterion • Multiply the rating by the weight assigned to the criteria • Display as the weighted score in the main body of each cell. • Select the highest scoring projects
Sensitivity Analysis • Examine what would happen to the decision if factors going into it were to change • Some criteria may be deemed more important than others • Add missing criteria or new alternatives
Prioritizing Projects • Determine which projects should be assigned resources and be scheduled to begin first • Scoring models provide input to the process • Other considerations: • The urgency of each project • The cost of delaying the expected benefits from various projects • Practical details concerning the timing
Securing Projects – the Client perspective • Perform work processes necessary to secure external resources for executing project work • Plan purchasing and acquisitions • Plan contracting • Request seller responses • Select sellers
Securing Projects – the Contractor perspective • Identify potential project opportunities • Determine which opportunities to pursue • Prepare and submit project proposal • Negotiate to secure the project
Identify Potential Project Opportunities • Perform portfolio alignment exercise • Have representatives attend trade shows and professional conferences • Practice customer relationship management • Establish and nurture personal contacts • Link information systems to identify potential future projects and improve management of current projects
Determine Which Opportunities to Pursue • Target projects to pursue • Consider SWOT analysis to decide whether to pursue a potential project • Determine if a potential project will help achieve contractor objectives • Consider cost to pursue the work • Consider probability of successfully securing the project • Consider the capability to perform the work
Prepare and Submit Project Proposal • Understand the criteria the client will use to decide to whom they will award the project • Consider technical, managerial, and financial factors in contractor selection
Negotiate to Secure the Project • Negotiate the amount of money to be paid for a project • Negotiate contractual terms, schedule, specific personnel, quality standards, reporting mechanisms • A project manager attempts to find a solution to secure project work with enough profit potential
Summary • Project selection begins with the organization’s strategic planning • Use SWOT analysis for strategic analysis of the organization • Develop mission and vision statements as guiding principles • Use portfolio alignment to consider resources, organizational and individual capabilities necessary for identifying project opportunities
Summary • Evaluate potential projects through financial and/or scoring models • Prioritize selected projects for completion • Some external projects may be a better fit for helping an organization reach its goals