Project Selection and Initiation

Out of a countless number of opportunities, how does
the organization decide which projects to pursue?
Organizational guidelines
selection models: save time & money, maximize
likelihood of success
6 Important Issues when evaluating screening/selection
models:
Realism, Capability, Flexibility, Ease of Use, Cost, Comparability
Realism
model should reflect the organizations objectives, goals, & mission. Must be reasonable in terms of resource constraints & must take into
account performance, cost, and time
Capability
model should be flexible to consider alternatives, and robust enough to accommodate new criteria and constraints
Flexibility
model should be easy to adjust. ex.exchange rate changes
Ease of use
The model should be simple enough so that people from all areas of the organization can utilize it
Cost
The model itself should be cost effective (both
time money)
Comparability
Ability to apply the model to multiple projects
Approaches to Project Selection: Method #1, Checklist Model
• Simplest method of project screening & selection
• A list of criteria that pertain to choice projects
• ex. Cost & Speed to Market
• Screen each project against criteria
• Select project with best fit
• Drawbacks: subjective in nature, fail to resolve
trade-off issues
Approaches to Project Selection – Method #2, Simplified Scoring Models:
• Each criterion is ranked according to importance
• Weights are assigned to each criteria
• The choice project reflects a desire to maximize the impact of certain criteria on the decision
• Solves trade-off issue
• Procedure:
1. Assign importance weights to each criterion
2. Assign score values to each criterion (High=3,
Medium=2, Low=1)
3. Multiply importance weights by scores to =
weighted scores
4. Add the weighted score to find the overall project
score
5. Accept project with the highest acceptance score
Approaches to Project Selection – Method #3, Analytical Hierarchy Process:
• Address technical & managerial problems
associated with scoring models
• Increasingly popular method for project selection
• 4 steps involved
• Step 1: Structure the hierarchy of the criteria
• Decide on criteria (first level) then decide on
subcriteria (second level)
• Step 2: Allocate weights to the criteria and split among
subcriteria
• Step 3: Assign numerical weights to evaluation
dimensions (ex. poor=0, fair=.1, good=.3, very good=.6,
excellent=1.0)
• Step 4: Evaluate the projects: multiply the numeric
evaluation of the project by the weights assigned to the
criteria and then add up the results and compare
projects
Approaches to Project Selection – Method #4, Profile Models:
• Allows for plotting of risk/return options
• Select the project that maximizes returns while
staying within a certain range of minimal
acceptable risk.
Financial Models
Using financial analysis to make project selection decisions
3 common financial models:
• Discounted cash flow analysis
• Net present value
• Internal rate of return
Time Value of Money principle
Money earned today is worth more than money we expect to earn in the future, due to inflation & inability to invest the money
Discounted cash flow analysis
• Payback period: an estimate of the amount of time
that it will take the project to “pay back” its initial
budget and begin to generate a positive cash flow.
• Discounted cash flow analysis is used to determine
the payback period.
• goal: to estimate cash outlays and expected cash
inflows resulting from investment in the project
• a discount rate based on the firm’s cost of capital is
weighted and applied to the the calculation
• Payback period = investment/annual cash savings
Net Present Value
• Most popular of the financial models
• Estimates the change in the firm’s value if a project is undertaken.
• Positive NPV indicates that the firm will make
money and its value will rise.
• Also employs the discounted cash flow analysis by discounting future streams of income to estimate the present value of money.
Internal Rate of Return (IRR)
• Alternative method for evaluating the expected
outlays and income associated with a new project
• Asks: what rate of return will the project earn?
• Required “hurdle” rate must be met
• IRR = discount rate that equates the present
values of a project’s revenue and expense streams
Project Portfolio Management
Project portfolio management: the systematic process of selecting, supporting, and managing a firm’s collection of projects
• projects managed under a single umbrella, may
be either related or independent of one another
• Key is that a firm’s projects share a common
strategic purpose & the same scarce resources
• Entails: decision making, prioritization, review,
realignment, & reprioritization of a firm’s
projects.
Project Initiation
the initiating process group consists of those
processes performed to define a new project or a new phase of an existing project by obtaining authorization to start the project or phase
– Initial scope is defined (top level)
– Initial financial resources are committed
– Internal & external stakeholders are identified
– 2 Outputs:
– project charter
– project stakeholder register
Feasibility Study
• Feeds into the business case
• Preliminary study undertaken to determine and document a projects viability
• Allows organization to make an informed decision about weather or not to proceed w/ a project
• Used to ascertain the likelihood of a projects success before “real work” begins
• Provides alternative solutions to a problem and
recommendation on the best choice to resolve the issue
• Ex. Determining best site to build a new firm
Technical Feasibility Study
analyzes questions as to whether the technology needed exists, how difficult it is to build/acquire the technology, etc…
Schedule Feasibility Study
answers questions pertaining to time availability & resource availability
Culture Feasibility Study
measures the impact of various actions on the local general culture
Economic Feasibility Study
determine what type of economical impact the concept will have on a given area
Needs Assessment
• Feeds into statement of work (SOW), outcome of needs may be funded via other monies
• Purely identifies gaps in knowledge, skills, or processes
• An analysis of a process, group, or person that measures the knowledge, skills, interest, attitude, and/or abilities relevant to a particular issue, organization, goal, or objective
Gap Analysis
used to measure “gaps” btwn what currently
exists and what should exist for project to take place
– Gaps identified could be infrastructure, technology, processes, or knowledge
– i.e. certain test equipment, actors with a specific acting ability, animation specialist etc…
Project Charter
document that formally authorizes the existence of a project
– Establishes a partnership between the performing organization and requesting organization
– Contains: top level scope statement (project purpose), measurable project objectives and related success criteria, high level requirements, high level risks, high level schedule, high level budget, project approval requirements,
name of proj. mgr/team members, name of sponsor
– Short document; often only 1 page
Project Stakeholder Register
Contains all details related to identified stakeholders including, identification
information (name, org, etc), assessment information, stakeholder classification (internal/external)
Top level scope statement
high level description of work that is to be accomplished
Statement of Work (SOW)
narrative description of products or services to be delivered by the project
– contains: scope, location of work to be performed,period of performance, deliverables schedule including key milestones, applicable standards (ex.ISO), quality requirements, specialized requirements
Business case
provides information from a business
standpoint to determine if the project is worth the
required investment (utilize feasibility study)
Contracts
available as an input if the project is being
completed for an external customer (for the class you could utilize the syllabus as the contract)
Enterprise Environmental Factors
such as organizational structure, marketplace conditions, gov’t or industry standards
Organizational Process Assets
such as, policies, procedures, templates, historical information from a lessons learned knowledge base
Inputs to the Project Charter
Top level scope statement, Statement of Work (SOW), Business Case, Contract, Enterprise Environmental Factors, Organisational Process Assets
Project Initiation Package
• Management’s opportunity to review and accept/reject the project
• Power point slides (to the point not too wordy)
• Highlight major project points and any findings from the feasibility and needs assessment studies
• Capture elements of the project charter
• Include a copy of the stakeholder register