project selection jj

8/2/2019 Project Selection JJ

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Project Selection (Ch 4)

Dr. James J. Jiang

University of Central Florida


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Learning Objectives

Describe an overall framework for projectselection process


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Strategic Planning and ProjectSelection

Strategic planning involves determining long-termobjectives, predicting future trends, and projecting theneed for new products and services.

Organizations often perform a SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats

As part of strategic planning, organizations should:

A) Identify potential projects.

B) Use realistic methods to select which projects to work on.

C) Formalize project initiation by issuing aproject charter.


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A. Identifying Potential Projects

Its crucial to align IT projects withbusiness strategy.

Supporting explicit business objectives is thenumber one reason cited for investing in ITprojects. Companies with consolidated IT operations have

a 24 percent lower operational cost per end user. The consistent use of IT standards lowers

application development costs by 41 percent peruser.


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Information TechnologyPlanning Process


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Methods for Selecting Projects

There is usually not enough time orresources to implement all projects.

Methods for selecting projects include:

1. Focusing on broad organizational needs.

2. Categorizing information technologyprojects.

3. Performing net present value or otherfinancial analyses.

4. Using a weighted scoring model.


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1. Focusing on BroadOrganizational Needs

It is better to measure gold roughlythan to count pennies precisely.

Three important success criteria forprojects: There is a need for the project.

There are funds available for the project.

There is a strong will to make the projectsucceed.


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2. Categorizing IT Projects

One categorization assesses whether theproject provides a response to: A problem

An opportunity

A directive

Another categorization is based on the

time it will take to complete a project orthe date by which it must be done.

Another categorization is the overall

priorityof the project.


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Financial Analysis of Projects

Financial considerations are often an importantaspect of the project selection process.

Three primary methods for determining the

projected financial value of projects:

Net present value (NPV) analysis

Return on investment (ROI) Payback analysis


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Net Present Value Analysis

Net present value (NPV) analysis is amethod of calculating the expected net monetarygain or loss from a project by discounting allexpected future cash inflows and outflows to thepresent point in time.

Projects with a positive NPV should beconsidered if financial value is a keycriterion.

The higher the NPV, the better.


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Figure 4-2. Net Present ValueExample

Note that

totals areequal, but

NPVs are

not

because ofthe time

value of

money.


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Return on Investment

Return on investment (ROI) is calculated bysubtracting the project costs from the benefitsand then dividing by the costs.

ROI = (total discounted benefits - totaldiscounted costs) / discounted costs

The higher the ROI, the better.

Many organizations have a required rate of

return or minimum acceptable rate of returnon investment for projects.

Internal rate of return (IRR) can by calculatedby setting the NPV to zero.


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Payback Analysis

The payback period is the amount oftime it will take to recoup, in the form

of net cash inflows, the total dollarsinvested in a project.

Payback occurs when the cumulative

discounted benefits and costs are greaterthan zero.

Many organizations want IT projects tohave a fairly short payback period.

Fi 4 4 Ch ti th P b k


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Figure 4-4. Charting the PaybackPeriod

Excel file
http://../PPT%20Originals/Fig4-3.xlshttp://../PPT%20Originals/Fig4-3.xls


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Weighted Scoring Model

A weighted scoring model is a tool that provides asystematic process for selecting projects based onmany criteria.

Steps in identifying a weighted scoring model:1. Identify criteria important to the project

selection process.

2. Assign weights (percentages) to each criterion

so they add up to 100 percent.3. Assign scores to each criterion for each project.

4. Multiply the scores by the weights to get thetotal weighted scores.

The higher the weighted score, the better.


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Sample Weighted Scoring Model forProject Selection


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Problems in Project Portfolios(Added by J.J.)

No link between strategy and projectselection

Poor-quality portfolios (e.g., projects)

Reluctance to kill projects

Scare resources, a lack of focus

Selecting short-term and easy projects

Information overflow (or lack of qualityof information)

Decision making basing on power


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Project Selection Stages

Stage 1: Strategic ConsiderationsPhase

Considering both external and internal business

environments Matching with business strategies

Stage 2: Project Evaluation Phase Economic returns

Risk analysis Other criteria

Stage 3: Project/Portfolio SelectionPhase

Scoring method


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Project Selection Decision Process

Step1: Proposal Submission

Ensure the completeness of proposal Step 2: Assignment of external reviewers (division

managers) Assign each proposal to one or more peer reviewers

Step 3: Peer review (external reviewers/division

managers) Division managers coordinate the process ascoordinators

Validate the peer review results

Step 4: Aggregation of review results (divisionmanagers)

Recommend proposal list for panel evaluation

Step 5: Panel evaluation (department/divisionmanagers & experts)

Suggest a funded list

Step 6: Final decision (top management divisionmanagers)


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Key Success Factors forProject/Portfolio Selection

Centralised view: have and inventory ofcurrent and proposed significant projects

Financial analysis: ROI, NPV, Payback,

Risk analysis: complexity, technology risk,cash flow, organizational changes

Interdependencies among projects

Overall analysis: focus on overall portfolioperformance

Accountability and governance: topmanagement involvement, business leadersaccountable, using regular project portfolio

reporting


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Challenge of Project/PortfolioSelection

Lack of knowledge to evaluate risks

Lack of commitment of business leaders

Lack of cross-functional communication

Lack of a clear company strategy

Lack of appropriate way to measureproject/portfolio benefits

Lack of knowledge of portfoliomanagement techniques

project selection jj

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