Project Selection and

Prioritization
Chapter 2
Contemporary Project
Management
Chapter
Chapter
Vignette
Vignette D. D. Williamson, Louisville, KY
How does a truly global company with fewer
than 200 associates achieve noteworthy
results and market leadership?
Founded in 1865 D. D. Williamson is a global
leader in non-artificial colors
2004: Company embarked on a new vision
to double growth and profitability in five
years.
Identified the need to improve project
management as a key strategy to achieve
the vision.

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to a publicly accessible website, in whole or in part.
Chapter
Chapter
Vignette
Vignette D. D. Williamson, Louisville, KY
A prioritization matrix of 16 critical projects
would have senior leadership sponsors and
be assigned trained and capable project
managers to improve execution
2009: Changes to prioritization process
selected no more than five Visual Impact
Projects (VIPs) to receive high-level focus
and attention
Results: Large and complicated projects are
hitting the strategic target of on time, on
budget and on target regularly

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to a publicly accessible website, in whole or in part.
 At the end of this chapter
Describe the strategic planning process.
Describe the portfolio alignment process.
Itemize strengths and weaknesses of using
financial and scoring models to select
projects.
Describe how to select and prioritize projects
as an outgrowth of strategic planning.
Given organizational priorities and several
projects, demonstrate how to select and
prioritize projects using a scoring model.
Describe how to secure projects.

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 Strategic Planning Process
Strategic Analysis
Guiding Principles
Vision
Mission Statement
Strategic Objectives
Flow-down Objectives

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 Strategic Planning and
Portfolio Alignment

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 Strategic Analysis
Analysis of internal and external
environments
SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats)
Elements within the project teams control
What strengths and weaknesses the
organization possesses in itself
Elements over which the project team has
little/no control
What opportunities and threats are posed by
competitors, suppliers, customers, regulatory
agencies, technologies
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 SWOT Analysis for the Built
Green Home at Suncadia
Strengths Weaknesses Opportunities Threats
Green building has Green building has Uniqueness of Existing thinking on
a buzz not reached product green building and
mainstream its niche focus
Seattle has a strong Limited project Location Building schedule
green building resources
community support community
Strong community Distance away from Community Community
support Seattle Green surrounding house (location)
building is
perceived to be
costly
Growth in green High cost of green Lack of data on Rumors
building projects projects green building
that demonstrate (wealth) value
value
Need to provide
numbers on green
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building value
to a publicly accessible website, in whole or in part.
 Guiding Principles
The vision describes the organization of
the future
vivid description of a preferred future
Require extra effort to be achieved
Often multiyear goals that end in suggesting
the need for a new vision
The mission statement provides a
mechanism for achieving the vision
organizations core purpose, core values,
beliefs, culture, primary business, primary
customers
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 Mission Statement
Considerations
Purpose communicates why an organization
exists
Beliefs what the leaders of an organization
stand for
Core values how decisions will be made and
how people will be treated
Culture how members should act
Primary business areas what business the
organization engages in
Primary customers which groups of people
need to be satisfied

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Cincinnati Childrens Hospital
Medical Center Vision and
Mission
Vision

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 Strategic Objectives
Means of achieving the vision and mission
Objective setting occurs annually
Describe short term and long term results
Describe measures of achievement
Effective objectives are SMART
Specific
Measurable
Achievable
Results-based
Time-specific
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 Midland Insurance Company
Strategic Objectives

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 Flow-down Objectives
How to implement strategic
objectives
Objectives may be implemented
through ongoing operations
Projects are the primary method for
implementing objectives

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 Portfolio Alignment
Assess organizations ability to
perform projects
Portfolios
Programs
Projects and subprojects

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 Portfolios
Organizations require work activities
including ongoing operational work and
temporary project work
Try to achieve a sense of balance in
portfolios
Some large and some small projects
Some high-risk, high-reward projects and
some low-risk projects
Some projects that can be completed quickly
portfolio
and some
portfolio aacollection
collection
that take of
ofprojects
projects
substantialor
orprogramstime and
programs and other
other
work
work that that are
aregrouped
groupedtogether together to tofacilitate
facilitateeffective
effective
management
managementof ofthat
that work
work to tomeet
meet strategic
strategic business
business
objectives.
objectives.
The
TheAll
2012 Cengage Learning.
projects
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 Programs
Programs last as long as the
organization lasts
Specific projects within a program
are of limited duration
Portfolios and programs are managed
program
program a agroup
groupofofrelated
relatedprojects
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managedin inaa
at a levelway
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to a publicly accessible website, in whole or in part.
 Projects and Subprojects
A large project may be composed of
multiple subprojects
The project manager coordinates
subprojects and make decisions that
are best for the overall project
subproject
subproject a
asmaller
smallerportion
portionof
ofthe
theoverall
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project
created
createdwhen
whenaaproject
project isissubdivided
subdivided into
intomore
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components or or pieces.
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 Portfolio of Projects and
Operational Work Processes
 Reasons for Project Failure
Not enough resources
Not enough time
Unclear expectations
Changes to the project
Disagreement about expectations

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 Project Alignment
Aligned projects contribute to the
organizations objectives
Align potential projects with the
goals of the parent organization

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 The Project Portfolio
A collection of projects grouped to be
collectively managed
Projects are selected to contribute to
the organizations goals
Portfolio alignment identifies, selects,
and prioritizes projects to help
achieve an organizations strategic
goals
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 Portfolio, Program, Project,
and Subproject Relationships

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 Assess Organizations Ability to
Perform Projects
Do we have a teamwork attitude, free
and open communication, creativity,
and empowered decision-making?
Do we have a clearly defined project
management process?
Do our associates have the right
attitudes, skills, and competencies to
use the project management process?
Are our leaders at each level willing to
2012take appropriate
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to a publicly accessible website, in whole or in part.
copied or duplicated, or posted
 Assess Organizations Ability to
Perform Projects

Does senior leadership establish a

strong leadership foundation?
Do individuals and teams exhibit
leadership at their respective levels?
Do we monitor and understand our
external environment?

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 Identifying Potential Projects
People from all levels and all
functional areas should participate
Identify twice as many potential
projects as the organization has time
and resources to perform
Develop a brief description of all
potential
statement
statement of projects
of work
work narrative
narrativedescription
descriptionof
ofproducts
productsor
or
services
The toto
services be
beprovided
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elevator speech
business
businesscase case provides
providesthe theinformation
informationneeded neededfrom from
aabusiness
business standpoint
standpoint to
to determine
determine ifif the
the project
project isis worth
worth
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the
to a publicly
investment.
theaccessible
investment. PMBOK
PMBOK
website, in whole or in part.
Guide
Guide
 Project Selection,
Prioritization, and Initiation

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 Methods for Selecting
Projects
Ensure overall organizational priorities
are understood, agreed upon, and
communicated
Prioritization considerations include:
What value each potential project brings to
the organization?
Are the demands of performing each project
understood?
Are the resources needed to perform the
project available?
Is there enthusiastic support both from
external customers and from one or more
internal champions?
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Which
to a publicly accessible projects
website, in whole will best help the
or in part.
organization achieve its goals?
 Methods for Selecting
Projects
Include financial and scoring models
Projects are investments

Three different approaches

Use financial analysis as the primary means of
determining which projects are selected
Use financial models as screening devices to
qualify projects for a scoring model
Financial justification is one factor in a multi-
factor scoring model
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 Using a Financial Model to Select
Projects
Compare expected project costs to
expected project benefits
Net present value is the most widely
accepted model
Discount the expected future value of project
costs and benefits
Subtract the stream of discounted project costs
from the stream of discounted project benefits
Result yields the net present value of the
potential project

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 Using a Financial Model to Select
Projects
The benefit-cost ratio model
Divide the cash flow by the initial cash
outlay
A ratio above 1.0 means the project is
expected to profit
The internal rate of return model
Calculate the percentage return expected on
the project investment
A ratio above the current cost of capital is
considered positive
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 Using a Financial Model to Select
Projects
The payback period
Calculate how many years would be required
to pay back the initial project investment
Shorter payback periods are desirable
Financial models ensure that projects make
sense from a cost and return perspective
None of the financial models ensure
alignment with an organizations strategic
goals

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 Financial Models for Project
Selection
Net Present Benefit-Cost Internal Rate of Payback Period
Value Ratio Return (IRR) (PP)
(NPV) (BCR)
Calculation PV revenue Cash Percentage Project costs/
PV cost flow/Project return on project Annual cash flows
investment investment

Neutral Result NPV = $0 Ratio = 1.0 IRR = Cost of Payback period =

capital Accepted length
If used to NPV > Ratio > IRR > Payback period <
screen Acceptable Acceptable Acceptable Acceptable length
projects or to amount amount amount
select projects
outright

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 Using a Scoring Model to Select
Projects
Develop a list of project selection criteria
How well does this project fit with at least one
organizational objective?
How many customers are there for the expected
results?
How competitively can the company price the
project results?
What unique advantages will this project provide?
Does the company have the resources needed?
What is the probability of success?
What is the expected return on investment?

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 Using a Scoring Model to Select
Projects
Identifying Potential Criteria
Jointly determine what criteria will be used to
select projects
Determine mandatory criteria
Are there any situations that dictate a project must
be chosen regardless of any other consideration?
Weighting criteria
Give the most important criterion a weight of 10
Assign other weights based on its importance
relative to the most important criterion

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 Project Selection and Prioritization
Matrix

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 Evaluating Projects Based on
Criteria
Evaluate one criterion at a time
Rate each project on that particular
criterion
Multiply the rating by the weight
assigned to the criteria
Display as the weighted score in the
main body of each cell.
Select the highest scoring projects
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 Completed Project Selection and
Prioritization Matrix

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 Sensitivity Analysis
Examine what would happen to the
decision if factors going into it were
to change
Some criteria may be deemed more
important than others
Add missing criteria or new
alternatives

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 Prioritizing Projects
Determine which projects should be
assigned resources and be scheduled to
begin first
Scoring models provide input to the
process
Other considerations:
The urgency of each project
The cost of delaying the expected benefits from
various projects
Practical details concerning the timing
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 Alternative Breaks Project
Selection and Prioritization
Matrix
Active
Service Organizati
Project/Selection Opportuni Issue on to
Criteria ty Itself work with Cost
Tota
9 10 6 5 l
New York Vegan Farm 5 4 3 4 123
45 40 18 20
West Virginia
Sustainability 4 3 4 5 115
36 30 24 25
Chicago Halfway
House 2 4 4 4 102
18 40 24 20
El Salvador Cultural
Immersion 1 5 5 1 94
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 Securing Projects the Client
perspective
Perform work processes necessary to
secure external resources for
executing project work
Plan purchasing and acquisitions
Plan contracting
Request seller responses
Select sellers

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 Securing Projects the Contractor
perspective
Identify potential project
opportunities
Determine which opportunities to
pursue
Prepare and submit project proposal
Negotiate to secure the project

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 Identify Potential Project
Opportunities
Perform portfolio alignment exercise
Have representatives attend trade
shows and professional conferences
Practice customer relationship
management
Establish and nurture personal contacts
Link information systems to identify
potential future projects and improve
management of current projects
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 Determine Which Opportunities to
Pursue
Target projects to pursue
Consider SWOT analysis to decide whether
to pursue a potential project
Determine if a potential project will help
achieve contractor objectives
Consider cost to pursue the work
Consider probability of successfully securing
the project
Consider the capability to perform the work
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 Prepare and Submit Project
Proposal
Understand the criteria the client will
use to decide to whom they will
award the project
Consider technical, managerial, and
financial factors in contractor
selection

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 Typical Source Selection Criteria

Technical Management Financial Operational

Technical Management Financial Production

experience experience capacity capacity

Needs Business size

understanding Project charter Life cycle cost and type

Technical Planning and Cost basis and Past

approach scheduling assumptions performance

Risk mitigation Project control Warranties References

 Negotiate to Secure the
Project
Negotiate the amount of money to
be paid for a project
Negotiate contractual terms,
schedule, specific personnel, quality
standards, reporting mechanisms
A project manager attempts to find
a solution to secure project work
with enough profit potential
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 Summary
Project selection begins with the
organizations strategic planning
Use SWOT analysis for strategic analysis of
the organization
Develop mission and vision statements as
guiding principles
Use portfolio alignment to consider
resources, organizational and individual
capabilities necessary for identifying project
opportunities
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 Summary
Evaluate potential projects through
financial and/or scoring models
Prioritize selected projects for
completion
Some external projects may be a
better fit for helping an organization
reach its goals

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 Prioritizing Projects at D. D.
Williamson
Senior management team selected a
maximum of two projects per senior
management sponsor
Hired a continuous improvement
manager as project office and key
resource for project facilitation
Elevated a subset of projects to
highest status VIPs (Vision Impact
PM in Action
Projects) Example
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 Prioritizing Projects at D. D.
Williamson
Global Operating Team now has laser
focus on five VIPs
The prioritization process has
become a foundation of cross-
functional success

PM in Action
Example
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