Strategic Management and Project Selection

1
Strategic Managementand Project Selection

• Maturity of Project Management
• Criteria for PS Models
• Nature of PS Models
• Types of PS Models
• Uncertainty Analysis and Risk Management
• Information Base for PS Models
• Project Portfolio Process (PPP)
• Project Proposal

2
Overview of PS Process

• Project Management Office (PMO) Aligning
  corporate needs and project goals
• Project selection Choose candidate projects
  using evaluation criteria
• Dealing with uncertainty Risk analysis
• Strategically selecting best projects Project
  Portfolio Process (PPP)
• Locking up the deal Writing a project proposal

3
Project Management Maturity Levels

• Ad-hoc (essentially disorganized)
• Abbreviated (some processes exist)
• Organized (standardized processes)
• Managed (measured processes)
• Adaptive (continuous improvement)

4
PS Models

• Idealized view of reality
• Representing the STRUCTURE of the problem, not
  the detail
• Deterministic or stochastic

5
Criteria for Project Selection Models (Soulder)

• Realism (technical-, resource-, market-risk)
• Capability (adequately sophisticated)
• Flexibility (valid results over large domain)
• Ease of Use (no expert needed to run model)
• Cost (much less than project benefit)
• Easy Computerization (use standard software)

6
Nature of PS models Caveats

• Project decisions are made by PM --- NOT by PS
  model!
• A PS model APPROXIMATES, but does NOT DUPLICATE
  reality!

7
Nature of PS Models Methodology

• Start with detailed list of firms goals
• Create list of project evaluation factors (PEFs)
• Weigh every element in PEF list
• Compute an overall score for project based on
  weighted PEFs
• Select project that has the closest alignment
  with firms goals

8
Project Evaluation Factors (PEFs)

• Production Factors
• Marketing Factors
• Financial Factors
• Personnel Factors
• Administrative and Misc. Factors

9
Types of PS Models Nonnumeric

• Sacred Cow
• Operating Necessity
• Competitive Necessity
• Product Line Extension
• Comparative Benefit Model

10
Numeric PS Models
Profit/Profitability

• Payback Period (PB)
• Average Rate of Return
• Discounted Cash Flow (NPV)
• Internal Rate of Return
• Profitability Index
• Other Profitability Models

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Numeric PS Models Scoring

• Unweighted 0-1 Factor Model
• Unweighted Factor Scoring Model
• Weighted Factor Scoring Model
• Constrained Weighted Factor Scoring Model

• S ?(x)
• S ?(s)
• S ?(sw)
• S ?(sw) ?(c)

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Choosing the PS Model

• Dependent on wishes and philosophy of management
• 80 of Fortune 500 firms choose nonnumeric PS
  models
• Firms with outside funding often choose scoring
  PS models
• Firms without outside funding often choose profit
  / profitability PS models

13
Management of Risk Terminology

• Risk Decision based on complete information
  about the probability of each possible outcome.
• Uncertainty Decision based on incomplete or
  insufficient data.
• Game Decision based under conditions of conflict.

14
Areas of Uncertainty

• Project timing expected cash flow.
• Direct outcome of project, i.e. what exactly will
  the project accomplish
• Side effects and unforeseen consequences of
  project

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Project Portfolio Process (PPP)

• Step 1 Establish a Project Council
• Step 2 Identify project categories criteria
• Step 3 Collect project data
• Step 4 Assess resource availability
• Step 5 Reduce project and criteria Set
• Step 6 Prioritize projects within categories
• Step 7 Prioritize the projects within categories
• Step 8 Implement the Process

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Step 1 Establish a Project Council

• Includes
• Senior Management
• Project Managers of major projects
• Relevant general managers
• Those who identify key risks
• Those who could derail PPP later

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Step 2 Identify Project Categories and Criteria

• Derivative Projects
• Platform Projects
• Breakthrough Projects
• R D Projects

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Step 3 Collect Project Data

• Use activity based costs
• Verify all data
• Include timing for benefits and resource needs
• Document assumptions for future checking

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Step 4 Access Resource Availability

• Access availability of Internal and External
  Resources by
• Type
• Department
• Timing can vary 100 over project life cycle

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Step 5 Reduce the Project and Criteria Set

• Narrow down existing projects
• required competence exists in organization
• Market for offering
• Profitability
• Risk
• Potential partner to assist with project
• Right resources available at the right times
• Good technological fit with organization
• Uses organizations strengths
• Synergetic with other important projects
• Slipped in desirability

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Step 6 Prioritize Projects within Categories

• Rank projects within each category
• Measure by
• Risk
• Development of new knowledge
• Consider benefits first
• Consider cost second

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Step 7 Select the projects to be Funded and
Held in Reserve

• Determine the mix of projects across various
  categories and time periods
• Leave 10-15 of organizations resources free
• Focus on committing to FEWER projects

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Step 8 Implement the Process

• Make results of the PPP widely known
• Senior management must fully fund
• Process will be repeated on a regular basis

24
Project Proposal Content

• Cover letter
• Executive summary
• Description and past experience of project team
• Nature of technical problem to be solved
• How to approach solution of technical problem
• Plan for implementation of project
• Plan for logistic support and administration

25
Project Proposal Cover Letter Executive
Summary

• Compose a cover letter as key marketing
  instrument
• Explain fundamental nature and general benefits
  of project
• Minimally technical language

26
Project Proposal Past Experience of
Project Team

• List all key project personnel with titles and
  qualifications
• Include full resume of each principal
• Provide all pertinent references

27
Project Proposal Technical Approach

• General description of problem to be addressed or
  project to be undertaken
• Major subsystems of problem or project
• Methodology of solving the problem
• Special client requirements
• Test and inspection procedures

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Project Proposal Implementation Plan

• Estimates of time, cost and materials for each
  subsystem and the whole project
• Establish major milestones to break project into
  phases
• List equipment, overhead and administrative cost
• Develop contingency plans (including slack time)

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Project Proposal Plan for
Administration and
Logistic Support

• Control over subcontractors
• Nature and Timing of all reports (progress,
  budget, audits)
• Change management
• Termination Procedures
• Touch of class capabilities (artists
  renderings, meeting facilities, video
  conferencing, computer graphics)