Project SelectionTechniques for selecting projects

Learning ObjectivesUnderstand basic evaluation models for selecting projectsUnderstand various techniques and approaches to evaluating potential projectsUnderstand the utility of computer tools in project selectionBe able to evaluate your organizations techniques and suggest improvements

Why is Project Selection Important?The FIRST STEP in successful projects

Wasted resources with starts and stops, high-risk, high-cost projectsLost opportunity costs of not doing the right projectsCompletion of projects that do not contribute to the organizations strategic direction (throw-aways)

Overview of PS IssuesProject Management Office (PMO): What role should it play? How can it help?Project Proposals: How is the list of potential projects built?Strategically selecting best Projects: What global criteria should be used? Project Selection: What local, individual criteria are importantDealing with Uncertainty: How important is risk analysis at this stage?

Project Management OfficeWhat role should it play?

Potential Roles for the PMODefine proposal formats and requirementsCollect proposalsDo preliminary screening based on criteria (local and global)Convene Strategic Board (Decision makers)Recommend and provide details to decision making boardFollow-up on getting project approved, funded, organized, and initiated.

Project ProposalsHow to document a potential project

Project Proposal:ContentExecutive summaryStatement of need and business benefits of projectNature of problem to be solved and general approach to a solutionApproach for implementation and support for the projectDescription and experience of potential project team

Project Proposal:Statement of need and Business BenefitDescription of the need in general terms (non-technical)

Why it is a need now urgencyBusiness Benefits

Tangibles and intangibles

Project Proposal:Technical ApproachMore detailed description of problem to be addressed or project to be undertakenMajor subsystems of problem or projectMethodology or approach of solving the problem

Possibly alternative analysisSpecial client requirements

Project Proposal:Implementation and support approachRough Order of Magnitude of effort and costImpacts on equipment, facilities, staffIn-house resource capability versus out-sourcing potentialityTermination success statementPotential logistic support neededOther success needs

Project Proposal:In-house staff and skills requirementKey project staff requiredEstimate of skills requiredAvailability of required project staffImpacts on organization departments and personnel

Project Selection ModelsGlobal and Local Criteria

Models BenefitsReal world problems are much too complex to analyze in their entiretyA Model is an attempt to identify and isolate the essential elements of the real world problem in order to simplify enough for analysisModels can provide valuable insight into the elements of a problem

Types of ModelsNumeric versus Non-numericStochastic versus Deterministic

Analytical versus DescriptiveDiagrammatic versus TextualComplex, multifaceted versus Simple, single dimension

Characteristics of Good ModelRealistic Should include all important variables of the real problemCapable Should be able to integrate the variables into the algorithmFlexible Should handle various combinations of variables, including new onesEasy to use Should be intuitive, not requiring a long or steep learning curveComputerized To alleviate the workload of using it

Non-numeric Selection ModelsSacred Cow (The boss wants it)Mandatory due to operationsMandatory due to competitionMandatory due to legislation (legal)Extension of existing activities, projects, products, or processesComparative Benefits (Opinion based)

DiscussionDelphiQ-Sort

Q-Sort

Numeric PS Models:Profit / ProfitabilityPayback Period (PB)Average Rate of ReturnDiscounted Cash Flow (NPV)Internal Rate of ReturnProfitability Index

Numeric PS Models:ScoringUnweighted 0-1 Factor ModelUnweighted Factor Scoring ModelWeighted Factor Scoring ModelConstrained Weighted Factor Scoring Model

S = (x), x=0,1

S = (s), s=score

S = (sw), w=weight

S = (sw) (c), c=constraint

Benefits of Scoring ModelsStructurally simpleMultiple decision criteriaEasy to modifyEasy to do what if or sensitivity analysisWeights provide flexibility

Drawbacks of Scoring ModelsIt is a ranking method, but does NOT necessarily represent true valueQuantitative value may cause decisions without judgmentAssigning values sometimes is haphazardInput value changes (assumptions) may cause large swings in results

Choosing the PS ModelFirms with outside funding often chose scoring PS modelsFirms without outside funding often chose profit / profitability PS models80% of Fortune 500 firms also use nonnumeric PS models

Risk Analysis with Crystal Ball

Including Risk Analysis Stochastic ModelsInstead of assigning a fixed value to a raw score, assign a range of values and a probability.Probability is usually more realistic It may also be more correct

Areas of UncertaintyProject timing & expected cash flow. Direct outcome of project, i.e. what exactly will the project accomplish

Side effects and unforeseen consequences of project

Introduction to Monte Carlo TechniqueOutputs are a result of an algorithmic combination of inputsif the inputs cannot be determined with confidence, then provide a probability rangeMonte Carlo Simulation picks an input value, based on the probability function, for each variable and calculates the result from the algorithmThis is done numerous times (500 or 1000) and the results are plotted

Crystal BallA Monte Carlo Tool that plugs into ExcelAny formula or calculation that can be done in Excel can be modified to use probabilities and Monte Carlo Simulation

Probability Distributions for Inputs

Risk Analysis: Output

Self AssessmentWhat are some of the roles of the PMO in project selection?What should be included in a project proposal?How does a Q-Sort work?How does a Scoring Model work? What is a Monte Carlo technique? What is Crystal Ball? How does it work?

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