copyright 2009 john wiley & sons, inc. chapter 2 selecting projects strategically dr. ayham...
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Copyright 2009 John Wiley & Sons, Inc.
Chapter 2
Selecting Projects StrategicallyDr. Ayham Jaaron
Problems With Multiple Projects
1. Delays in one project delays others
2. Inefficient use of resources
3. Bottlenecks in resource availability
Project Results
According to a global study by Thomas et al., 2001):
30 Percent of projects are canceled midstream.
Over half of completed projects are 190 percent over budget
Over half of completed projects are 220 percent late
Challenges
Making sure projects closely tied to goals and strategy
How to handle growing number of projects
How to make projects successful
Project Management Maturity
Project management maturity refers to mastery of skills required to manage project competently.
Number of ways to measure maturity is developed based on five stages: ad-hoc, planned, managed, integrated, sustained.
Most organizations do not do well
Class Task: Group Discussion (10 minutes)
If you were a company CEO. What would you do to select your company’s projects? What criteria you would use to make sure that these projects is a necessity for the company?
Please list all of the possible factors.
Project Selection and Criteria of Choice
Same process as other business decisions
Project selection: is the process of evaluating individual projects or groups of projects and then choosing to implement some set of them so that the objectives of the parent organization will be achieved.
Types of Companies
Companies considering projects fall into two broad categories:
1. Companies whose core business is completing projects
2. Companies whose core business is something else
They can also be broken down as:1. Companies looking at projects to do for others2. Companies looking at projects to do for
themselves
Project Companies
Must select which projects they will bid on Generally based on…
– Their expertise– Resource they have availability– Their chance of winning bid
Preparing a bid is expensive They do not want to waste that effort on bids
where they are unlikely to be successful
Non-Project Companies
Must decide which potential projects they will pursue
Available capital is the major constraintProfitability is often the major criteriaMust evaluate approaches when there
is more than one project that can accomplish a goal
Different Factors Affecting Outcome of a project.
Many factors affect the outcome of a project– Some are one-time factors
The cost of an item
– Others are reoccurring Maintenance
Not all factors are equally important Critical factors on one project may be trivial
on another project
Types of Project Selection Models
Nonnumeric modelsNumeric models
Nonnumeric Models
Models that do not return a numeric value for a project that can be compared with other projects
These are really not “models” but rather justifications for projects
Just because they are not true models does not make them all “bad”
Types of 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.” Example: new product.
Operating Necessity– A project that is required in order to protect lives or
property or to keep the company in operation. Example: a project to build a protective dam.
Competitive Necessity– A project that is required in order to maintain the
company’s position in the marketplace. Example: building new plant to enhance competitiveness.
Types of Nonnumeric Models Continued
Product Line Extension– Often, projects to expand a product line are
evaluated and judged on how well the new product meshes with the existing product line rather than on overall benefits.
Comparative Benefit– Projects are subjectively rank ordered based on
their perceived benefit to the company.
Numeric Models
Models that return a numeric value for a project that can be easily compared with other projects
Two major categories:1. Profit/profitability
2. Scoring
Profit/Profitability Models
Models that look at costs and revenues– Payback period– Profitability
Other engineering economy methods are used here to evaluate profitability of different projects.
Payback Period
The length of time until the original investment has been recouped by the project
A shorter payback period is better
Payback Period Example
4000,25$
000,100$PeriodPayback
FlowCash Annual
CostProject PeriodPayback
Advantages of Profitability Models
Easy to use and understandBased on accounting data and
forecastsFamiliar and well understoodGive a go/no-go indication
Disadvantages of Profitability Models
Ignore non-monetary factorsSome ignore time value of moneyPayback models ignore cash flow after
payback
Scoring Models
Unweighted factor modelWeighted factor model
Unweighted Factor Model
Each factor is weighted the sameLess important factors are weighted the
same as important onesEasy to computeJust total or average the scores
Unweighted Factor Model Example
Figure 2-2
Weighted Factor Model
Each factor is weighted relative to its importance– Weighting allows important factors to stand out
A good way to include non-numeric data in the analysis
Factors need to sum to one All weights must be set up so higher values
mean more desirable Small differences in totals are not meaningful
Weighted Factor Model Example
Assume that we have the following criterion for purchasing automobile:
Purchase Relative importance (1-10)
weights
appearance 4 .10
braking 3 0.07
Comfort 7 0.17
Cost, operating 5 0.12
Cost, original 10 0.24
Handling 7 0.17
reliability 5 0.12
Total 41 1.00
Weighted Factor Model Example
There are 5 types of cars (projects) that we can choose from. We can estimate performance measures for each car/project on the criterion chosen on scale of (1-5) as shown in the table below:
Weighted Factor Model Example
Figure B
Project Portfolio Process (PPP)
Links projects directly to the goals and strategy of the organization. This occurs throughout the life of a project; from initiation to termination.
Means for monitoring and controlling projects. When a project becomes a burden, then it
deflects from the strategy.
PPP Steps
1. Establish a project council: who is responsible for arranging funds for strategy supporting projects. Usually joint venture/inter departmental projects.
2. Identify project categories and criteria3. Collect project data4. Assess resource availability5. Reduce the project and criteria set: reduce competing
projects.6. Prioritize the projects within categories7. Select projects to be funded and held in reserve8. Implement the process
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
Step 2: Identify Project Categories and Criteria
1. Derivative projects: add extension to current offerings. e.g. lower priced product.
2. Platform projects: major offerings. e.g. new type of automobile.
3. Breakthrough projects: newer technology. e.g. new technology use (fiber-optics for data)
4. R&D projects: e.g. using existing technologies in new manner.
Step 3: Collect Project Data
Assemble the data for proposed projects.
Document assumptionsScreen out weaker projectsThe fewer projects that need to be
compared and analyzed, the easier the work
Step 4: Assess Resource Availability
Assess both internal and external resources
Assess labor conservativelyTiming is particularly important
Step 5: Reduce the Project and Criteria Set
Market for offeringPotential partnerResourcesGood tech./knowledge fit
Narrow down the number of competing projects. Possible screens might be:
Step 6: Prioritize the Projects Within Categories
Apply the scores and criterion weights (numeric, non-numeric)
Consider in terms of benefits first, resource costs second
Summarize the returns from the projects
Step 7: Select the Projects to be Funded and Held in Reserve
Determine the mix of projects across the categories
Leave some resources free for new opportunities
Allocate the categorized projects in rank order
Step 8: Implement the Process
Communicate resultsRepeat regularly Improve process
Project Proposals
The project proposal is essentially a project bid
Putting together a project proposal requires a detailed analysis of the project
Project proposals can take weeks or months to complete
A more detailed analysis may result in not bidding on the project
Project Proposal Contents
Cover letterExecutive summaryThe technical approachThe implementation planThe plan for logistic support and
administrationPast experience