Project
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Chapter2-OrganizationStrategyandProjectSelection.pptxChapter Two
Organization Strategy and Project Selection
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Where We Are Now
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Learning Objectives
Explain why it is important for project managers to understand their organization’s strategy
Identify the significant role projects contribute to the strategic direction of the organization
Understand the need for a project priority system
Apply financial and nonfinancial criteria to assess the value of projects
Understand how multi-criteria models can be used to select projects
Apply an objective priority system to project selection
Understand the need to manage the project portfolio
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter Outline
2.1 The Strategic Management Process: An
Overview
2.2 The Need for a Project Priority System
2.3 A Portfolio Management System
2.4 Selection Criteria
2.5 Applying a Selection Model
2.6 Managing the Portfolio System
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Why Project Managers Need to Understand Strategy
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.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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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.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Four Activities of the Strategic Management Process
Review and define the organizational mission
Set long-range goals and objectives
Analyze and formulate strategies to reach objectives
Implement strategies through projects
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Strategic Management Process
FIGURE 2.1
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Project Management 6e
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Characteristics of Objectives
EXHIBIT 2.1
S Specific Be specific in targeting an objective M Measurable Establish a measurable indicator(s) of progress A Assignable Make the objective assignable to one person for completion
R Realistic State what can realistically be done with available resources
T Time related State when the objective can be achieved, that is, duration
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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The Need for a Project Priority System
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.
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Project Management 6e
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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
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Project Management 6e
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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.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Portfolio of Projects by Type
FIGURE 2.2
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Project Management 6e
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A Portfolio Management System
Selection Criteria
Financial models: payback, net present value (NPV)
Non-financial models: projects of strategic importance to the firm
Multi-Criteria Selection Models
Use several weighted selection criteria to evaluate project proposals.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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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.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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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.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Example Comparing Two Projects Using Payback Method
EXHIBIT 2.3A
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Project Management 6e
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Example Comparing Two Projects Using Net Present Value Method
EXHIBIT 2.3b
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Project Management 6e
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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
To restore corporate image or enhance brand recognition
To demonstrate its commitment to corporate citizenship and support for community development
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Multi-Criteria Selection Models
Checklist Model
Uses a list of questions to review potential projects and to determine their acceptance or rejection.
Fails to answer the relative importance or value of a potential project and doesn’t to allow for comparison with other potential projects.
Multi-Weighted Scoring Model
Uses several weighted qualitative and/or quantitative selection criteria to evaluate project proposals.
Allows for comparison of projects with other potential projects.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Sample Selection Questions Used in Practice
EXHIBIT 2.4
| Topic | Question |
| Strategy/alignment | What specific strategy does this project align with? |
| Driver | What business problem does the project solve? |
| Success metrics | How will we measure success? |
| Sponsorship | Who is the project sponsor? |
| Risk | What is the impact of not doing this project? |
| Risk | What is the project risk to our organization? |
| Risk | Where does the proposed project fit in our risk profile? |
| Benefits, value, ROI | What is the value of the project to this organization? |
| Benefits, value, ROI | When will the project show results? |
| Objectives | What are the project objectives? |
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Sample Selection Questions Used in Practice
EXHIBIT 2.4 cont’d
| Topic | Question |
| Organization culture | Is our organization culture right for this type of project? |
| Resources | Will internal resources be available for this project? |
| Approach | Will we build or buy? |
| Schedule | How long will this project take? |
| Schedule | Is the time line realistic? |
| Training/resources | Will staff training be required? |
| Finance/portfolio | What is the estimated cost of the project? |
| Portfolio | Is this a new initiative or part of an existing initiative? |
| Portfolio | How does this project interact with current projects? |
| Technology | Is the technology available or new? |
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e
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Project Screening Matrix
FIGURE 2.3
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Project Management 6e
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Applying a Selection Model
Project Classification
Deciding how well a strategic or operations project fits the organization’s strategy
Selecting a Model
Applying a weighted scoring model to align projects closer with the organization’s strategic goals
Reduces the number of wasteful projects
Helps identify proper goals for projects
Helps everyone involved understand how and why a project is selected
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Project Management 6e
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Sources and Solicitation of Project Proposals
Within the organization
Request for proposal (RFP) from external sources (contractors and vendors)
Ranking Proposals and Selection of Projects
Prioritizing requires discipline, accountability, responsibility, constraints, reduced flexibility, and loss of power
Managing the Portfolio
Senior management input
The governance team (project office) responsibilities
Applying a Selection Model (cont’d)
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Project Management 6e
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A Proposal Form for an Automatic Vehicular Tracking (AVL) Public Transportation Project
FIGURE 2.4A
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Project Management 6e
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Risk Analysis for 500-Acre Wind Farm
FIGURE 2.4B
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Project Management 6e
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Project Screening Process
FIGURE 2.5
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Project Management 6e
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Priority Screening Analysis
FIGURE 2.6
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Project Management 6e
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Managing the Portfolio System
Senior Management Input
Provide guidance in selecting criteria that are aligned with the organization’s strategic goals.
Decide how to balance available resources among current projects.
The Governance Team Responsibilities
Publish the priority of every project.
Ensure that the project selection process is open and free of power politics.
Reassess the organization’s goals and priorities.
Evaluate the progress of current projects.
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Project Management 6e
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Balancing the Portfolio for Risks and Types of Projects
Bread-and-butter Projects
Involve evolutionary improvements to current products and services.
Pearls
Represent revolutionary commercial opportunities using proven technical advances.
Oysters
Involve technological breakthroughs with high commercial payoffs.
White Elephants
Showed promise at one time but are no longer viable.
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Project Management 6e
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Key Terms
Implementation gap
Net present value
Organizational politics
Payback
Priority system
Priority team
Project portfolio
Project screening matrix
Project sponsor
Sacred cow
Strategic management process
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Project Management 6e
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