Objectives in Project Selection
• Value maximization
• Balance
• Strategic direction/fit
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Prioritizing and Selecting Projects
• If there is a lack of consensus and understanding
of organizational strategy among top and middlelevel managers
– Some projects would not contribute to the main
objectives and strategies of the firm.
– Many projects would not be complete on time or within
budget.
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Strategy and Project Management
Internal environment:
strengths &
weaknesses
Portfolio of
strategic choices
III
Review/
revise
mission
New goals &
objectives
Strategy
implementation
External environment:
opportunities & threats
I
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Strategy
formulation
IV
II
Projects
3
Prioritizing and Selecting Projects
• Power politics in an organization can have a
significant influence on whether a project receives
funding and high priority.
• Political behaviour is more likely to occur when:
– Decision-making procedures are uncertain.
– Performance measures are uncertain.
– Competition among people for scarce resources is high.
• So, politics might have a role in project selection.
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Prioritizing and Selecting Projects
• A project sponsor is typically a high-ranking manager who
endorses and lends political support for the completion of a
specific project.
• A typical result of a survey of projects in process and
proposed projects accepted:
1) Repetitive operations that are not projects (e.g. quarterly financial
reports) ………………………………………………... …. 90
2) Projects less than $40,000 or less than 500 labor hours. …..50
3) “real” projects
…………………………………………25
Total …….165
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Prioritizing and Selecting Projects
• There are potentially a large variety of models for
prioritizing and selecting projects.
• In the past these were exclusively financial
models, but now multi-objective models are
widely used as well.
– Some factors /objectives
•
•
•
•
new technology
core competencies
public image
improving customer loyalty
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Prioritizing and Selecting Projects
– Some financial models:
• IRR (internal rate of return) model
• The net present value model
• Real options approach.
• A project priority team (or project office) selects
and prioritizes projects.
– Priority must be published and the process must be
open and free of power politics.
• A intranet web site could publish priority, current status and
issues relating to projects.
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Prioritizing and Selecting Projects
• A very important question with no universal
answer:
– How many projects can an organization undertake at
any one time?
• From queuing theory we know that if we push for
more utilization the waiting time in queues
increases exponentially!
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Prioritizing and Selecting Projects
Project proposal
idea
Abandon
Periodic
reassessment
of priorities
Data collection
Self-evaluation
of project
Priority team evaluates
proposal & reviews
portfolio for risk balance
Reject
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Project
Screening
Process
Hold for
resources
Assign priority
Assign resources
Assign project manager
Evaluate progress
9
Prioritizing and Selecting Projects
Mortality of New Product Development Project: (Vonderembose &
White p. 175)
Vertical axis:Nbr of projects
60
Horizontal axis :Time
0a b c d
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e
f
g
a: preliminary evaluation
b: design & economic analysis
c: development & test
d: final planning
e: production
f: survival in the market
g: success
10
Funnels not Tunnels
• Companies use a “gate” system, where projects are
allowed to pass, delayed, revised or killed.
• In many companies, people tend not to kill projects,
although they are going nowhere!
projects
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Prioritizing and Selecting Projects
• A key concern of the priority team is the risk
associated with the portfolio of projects.
• A project might be rejected just because the
current project portfolio has too many projects
with the same characteristics, such as
–
–
–
–
risk level
use of key resources
non-revenue producing
long duration
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Prioritizing and Selecting Projects
Achieve sixsigma quality
Urgency
Stategic fit
2
1
8
0
4
3
2
3
9
5
2
7
3
4
6
2
4
9
5
6
3
2
1
10
6
2
7
6
4
3
50
64
83
71
2
1
3
8
9
7
70
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Weighted
score
Stay within
core
competencies
Project n
Improve
Customer
Loyalty
Criteria
Weight
Project 1
Project 2
Project 3
Project 4
ROI >= 15%
• Use of project scoring matrix:
13
A Project Prioritizing Example
• Determining weights of objectives
Analyze objective independently in three dimensions
1. Seriousness - What is the current impact of
0
the results of the objective on the organization? Small impact
10
Large impact
2. Urgency - Time factor. What will be the relative0
consequences of not taking action over the next 12Can defer
months?
10
Must take action
3. Future seriousness - What is the chance of the 0
Decrease or
objectives seriousness changing over time?
remain same
10
Dramatically
increase
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A Project Prioritizing Example
Seriousness Urgency
Improve external customer
service
10% decrease in production
costs
All activities meet current
legal, safety, and
environmental standards
Create $5 million in neew
sales
Provide immediate response
to field problems
Develop/document policies,
systems, procedures
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Future
Seriousness
5
4
6
15
7
6
4
17
M UST
8
4
6
18
10
10
10
30
7
10
6
23
15
Must objectives
Must meet if impacts
…26
All activities meet current
legal, safety, and
environmental standards
Yes-Meets objective
No-Does not meet ofj
N/A-No impact
n/a
All new products will have
a complete market
analysis
Yes-Meets objective
No-Does not meet ofj
N/A-No impact
yes
Relative
importance
1-100
Want objectives
Provides immediate
response to field
problems
30
Create $5 million in
new slaes by 199x
15
Improve external
customer service
18
Single project
impact definitions
27
28
29
Weighted Weighted Weighted Weighted
score
score
score
score
99
0 < Does not address
1 = Opportunity to fix
2 > Urgent problem
99
88
0 < $100,000
1 = $500,000
2 > $500,000
0
83
0 < Minor impact
1 = Significant impact
2 > Major impact
166
Total weighted score
Priority
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Project Proposal
Date _______
Number _______
Project Title ______________________________________________________
Responsible Manager ________________Project Manager _______________
•
_______•
General Support
•
_______•
_____________
•
_______•
_____________
YES •NO •
YES •NO •
YES •NO •
•
Quality
•
Legal
•
Cost reduction •
Replacement
•
___________ •
__________
•
New product
•
Capacity
•
__________
The project will take more than 500 labor hours?
The project is a one-time effort? (will not occur on a regular basis)
The project proposal was reviewed by the product manager?
Problem definition
Describe the problem/opportunity.
Goal definition
Describe the project goal.
Objective definition
Performance: Quantify the savings/benefits you expect from the project.
Cost: Labor hours, materials, methods, equipment?
Schedule: Overall duration in months
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What are the three major risks for this project?
1.
2.
3.
What is the probability
of the above risks
occurring?
0
none
to
1.0
high
What is the impact on
project success if these
risks do occur?
0
none
to
1.0
high
Risk
1 above
Risk
2 above
Risk
3 above
Risk
1 above
Risk
2 above
Risk
3 above
Resources available? ____________ Yes _______________ No
Current project status
Start date ____________ Estimated finish date __________________
Status:
Active
On-hold
Update:
Priority team action:
Accepted
Discovery--project not defined
Duplicate to: ____________
Operational--proposal not a project
Project #
Need more information--to prioritize project
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Returned
Completed project
18
Managing New Product Development
Project Portfolios
• Idea similar to business portfolio planning.
• It is about
– Resource allocation
• Which project will get funding?
– Corporate strategy
• Future products/markets depend on current projects
– Balance
• Risk vs return, maintenance vs growth, short-term vs longterm.
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Balanced Portfolio
• Most common tool:
– Risk-reward bubble diagram
– One axis: a measure of reward
• Qualitative or quantitative
– The other axis: a measure of risk
• E.g. Probability of success (technical and/or commercial).
– Size of the bubble: annual resources spent on each
project
• E.g. Dollars, person-hours etc.
– Shading: product line
– Color: timing (hot red: imminent launch; dark blue: an
early-stage project)
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Risk-Reward Bubble Diagram
Prob. Tech. success
Pearls
high
Bread and
butter
NPV
high
low
White
elephants
Oysters
low
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Risk-Reward Bubble Diagram
• Pearls: Potential star products
• Oysters: Long-shot projects; technical
breakthroughs will give solid payoffs.
• Bread and Butter: small, “no-brainer” project
• White Elephants: difficult to kill
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Risk-Reward Bubble Diagram
• In the previous example, the business risk is
accounted for by using risk-adjusted discount rates
in calculating NPV.
• What if reward is just evaluated qualitatively as
excellent, modest, low etc?
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Risk-Reward Bubble Diagram
• 3M uses a variation of the diagram where ellipses
are used instead of circles:
– Each project as low, likely and high estimates are given
for NPV and technical success probability.
P(success)
NPV
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Other Portfolio Balancing Approaches
• P&G uses Monte Carlo simulation and a three
dimensional model where the axes are
– NPV
– Time-to-launch
– Probability of success
• Simulation gives a distribution of NPVs, showing
projects as spheres in this three dimensional graph.
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