Professional Documents
Culture Documents
Selecting Projects Strategically
Selecting Projects Strategically
Selecting Projects
Strategically
Ch 2 2 / 64
Project Results
30 Percent late
Over half 190 percent over budget
Over half 220 percent late
Ch 2 3 / 64
Challenges
Ch 2 4 / 64
Project Management Maturity
Ch 2 5 / 64
Project Selection and Criteria of
Choice
Project selection…
– Evaluating
– Choosing
– Implementing
Same process as other business
decisions
Ch 2 6 / 64
Types of Companies
Ch 2 7 / 64
Project Companies
Ch 2 8 / 64
Non-Project Companies
Ch 2 9 / 64
Models
Ch 2 10 / 64
Types of Models
Stochastic Model
– A model that includes the probabilities of events
occurring within the model. In other words, the
same inputs might yield different outputs at
different runs. Also known as a probabilistic
model.
Deterministic Model
– A model that does not include probabilities. Given
the same inputs, the outputs will always be the
same.
Ch 2 11 / 64
Criteria For Project Selection
Models
Ch 2 12 / 64
Criteria (Continued)
Ch 2 13 / 64
Model Criteria
Realism
Capability
Flexibility
Easy to use
Inexpensive
Easy to implement
Ch 2 14 / 64
Realism
Ch 2 15 / 64
Capability
Ch 2 16 / 64
Flexibility
Ch 2 17 / 64
Easy to Use
Ch 2 18 / 64
Inexpensive
Ch 2 20 / 64
The Nature of Project Selection Models
Ch 2 21 / 64
Different Factors Affecting
Outcome
Ch 2 22 / 64
Types of Project Selection Models
Nonnumeric models
Numeric models
Ch 2 23 / 64
Nonnumeric Models
Sacred Cow
– A project, often suggested by top management,
that has taken on a life of its own. It continues, not
due to any justification, but “just because.”
Operating Necessity
– A project that is required in order to protect lives
or property or to keep the company in operation.
Competitive Necessity
– A project that is required in order to maintain the
company’s position in the marketplace.
Ch 2 25 / 64
Types of Nonnumeric Models Continued
Ch 2 26 / 64
Numeric Models
Ch 2 27 / 64
Profit/Profitability Models
Ch 2 28 / 64
Payback Period
Ch 2 29 / 64
Payback Period Example
Project Cost
Payback Period
Annual Cash Flow
$100,000
Payback Period 4
$25,000
Ch 2 30 / 64
Payback Period Drawbacks
Ch 2 31 / 64
Discounted Cash Flow
Ch 2 32 / 64
Discounted Cash Flow Continued
Ch 2 33 / 64
NPV Formula
Ft
NPV (project) A0 t 1
n
1 k t
Ch 2 34 / 64
NPV Formula Terms
Ch 2 35 / 64
NPV Example
8
$25,000
NPV (project) $100,000
t 1 1 0.15 0.03
t
$1,939
Ch 2 36 / 64
Internal Rate of Return [IRR]
Ch 2 37 / 64
Profitability Index
Ch 2 38 / 64
Advantages of Profitability Models
Ch 2 39 / 64
Disadvantages of Profitability
Models
Ch 2 40 / 64
Scoring Models
Ch 2 41 / 64
Unweighted Factor Model
Ch 2 42 / 64
Unweighted Factor Model Example
Figure
Ch 2 432-2
/ 64
Weighted Factor Model
Ch 2 44 / 64
Weighted Factor Model Example
Figure
Ch 2 45B/ 64
Analysis Under Uncertainty—The
Management of Risk
Ch 2 46 / 64
Risk and Uncertainty
Ch 2 47 / 64
Uncertainty
Ch 2 48 / 64
Comments on the Information Base for
Selection
1. Accounting data
2. Measurements
3. Uncertain information
Ch 2 49 / 64
Accounting Data
Ch 2 50 / 64
Measurements
Ch 2 51 / 64
Uncertain Information
Ch 2 52 / 64
Project Portfolio Process (PPP)
Ch 2 53 / 64
PPP Steps
Ch 2 54 / 64
Step 1: Establish a Project Council
Senior management
The project managers of major projects
The head of the Project Management Office
Particularly relevant general managers
Those who can identify key opportunities and
risks facing the organization
Anyone who can derail the PPP later on
Ch 2 55 / 64
Step 2: Identify Project Categories and
Criteria
1. Derivate projects
2. Platform projects
3. Breakthrough projects
4. R&D projects
Ch 2 56 / 64
Step 3: Collect Project Data
Ch 2 57 / 64
Step 4: Assess Resource Availability
Ch 2 58 / 64
Step 5: Reduce the Project and Criteria
Set
Ch 2 59 / 64
Step 6: Prioritize the Projects Within
Categories
Ch 2 60 / 64
Step 7: Select the Projects to be
Funded and Held in Reserve
Ch 2 61 / 64
Step 8: Implement the Process
Communicate results
Repeat regularly
Improve process
Ch 2 62 / 64
Project Proposals
Ch 2 63 / 64
Project Proposal Contents
Cover letter
Executive summary
The technical approach
The implementation plan
The plan for logistic support and
administration
Past experience
Ch 2 64 / 64