Project SelectionProject Selection

Techniques for selecting Techniques for selecting projectsprojects

Learning ObjectivesLearning Objectives

Understand basic evaluation models for Understand basic evaluation models for selecting projectsselecting projects

Understand various techniques and Understand various techniques and approaches to evaluating potential approaches to evaluating potential projectsprojects

Understand the utility of computer tools Understand the utility of computer tools in project selectionin project selection

Be able to evaluate your organization’s Be able to evaluate your organization’s techniques and suggest improvementstechniques and suggest improvements

Why is Project Selection Important?Why is Project Selection Important?

The FIRST STEP in successful projectsThe FIRST STEP in successful projects

Wasted resources with starts and Wasted resources with starts and stops, high-risk, high-cost projectsstops, high-risk, high-cost projects

Lost opportunity costs of not doing the Lost opportunity costs of not doing the “right” projects“right” projects

Completion of projects that do not Completion of projects that do not contribute to the organization’s contribute to the organization’s strategic direction (throw-aways)strategic direction (throw-aways)

Overview of PS IssuesOverview of PS Issues

1.1. Project Management Office (PMO):Project Management Office (PMO): What role should it play? How can it help?What role should it play? How can it help?

2.2. Project Proposals:Project Proposals: How is the list of How is the list of potential projects built?potential projects built?

3.3. Strategically selecting best Projects:Strategically selecting best Projects: What global criteria should be used? What global criteria should be used?

4.4. Project Selection:Project Selection: What local, individual What local, individual criteria are importantcriteria are important

5.5. Dealing with Uncertainty:Dealing with Uncertainty: How important How important is risk analysis at this stage?is risk analysis at this stage?

Project Management Project Management OfficeOffice

What role should it play?What role should it play?

Potential Roles for the PMOPotential Roles for the PMO Define proposal formats and requirementsDefine proposal formats and requirements Collect proposalsCollect proposals Do preliminary screening based on criteria Do preliminary screening based on criteria

(local and global)(local and global) Convene Strategic Board (Decision makers)Convene Strategic Board (Decision makers) Recommend and provide details to decision Recommend and provide details to decision

making boardmaking board Follow-up on getting project approved, Follow-up on getting project approved,

funded, organized, and initiated.funded, organized, and initiated.

Project ProposalsProject Proposals

How to document a potential How to document a potential projectproject

Project Proposal:Project Proposal:ContentContent

Executive summaryExecutive summary Statement of need and business benefits of Statement of need and business benefits of

projectproject Nature of problem to be solved and general Nature of problem to be solved and general

approach to a solutionapproach to a solution Approach for implementation and support Approach for implementation and support

for the projectfor the project Description and experience of potential Description and experience of potential

project teamproject team

Project Proposal:Project Proposal:Statement of need and Statement of need and

Business BenefitBusiness Benefit

Description of the need in general Description of the need in general terms (non-technical)terms (non-technical)• Why it is a need now – urgencyWhy it is a need now – urgency

Business BenefitsBusiness Benefits• Tangibles and intangiblesTangibles and intangibles

Project Proposal:Project Proposal:Technical ApproachTechnical Approach

More detailed description of problem to be More detailed description of problem to be addressed or project to be undertakenaddressed or project to be undertaken

Major subsystems of problem or projectMajor subsystems of problem or project Methodology or approach of solving the Methodology or approach of solving the

problemproblem• Possibly alternative analysisPossibly alternative analysis

Special client requirementsSpecial client requirements

Project Proposal:Project Proposal:Implementation and support approachImplementation and support approach

Rough Order of Magnitude of effort and Rough Order of Magnitude of effort and costcost

Impacts on equipment, facilities, staffImpacts on equipment, facilities, staff In-house resource capability versus out-In-house resource capability versus out-

sourcing potentialitysourcing potentiality Termination success statementTermination success statement Potential logistic support neededPotential logistic support needed Other “success” needsOther “success” needs

Project Proposal:Project Proposal:In-house staff and skills requirementIn-house staff and skills requirement

Key project staff requiredKey project staff required Estimate of skills requiredEstimate of skills required Availability of required project staffAvailability of required project staff Impacts on organization departments Impacts on organization departments

and personnel and personnel

Project Selection ModelsProject Selection Models

Global and Local CriteriaGlobal and Local Criteria

Models – BenefitsModels – Benefits

Real world problems are much too Real world problems are much too complex to analyze in their entiretycomplex to analyze in their entirety

A Model is an attempt to identify and A Model is an attempt to identify and isolate the “essential” elements of the isolate the “essential” elements of the real world problem in order to simplify real world problem in order to simplify enough for analysisenough for analysis

Models can provide valuable “insight” Models can provide valuable “insight” into the elements of a probleminto the elements of a problem

Types of ModelsTypes of Models

Numeric versus Non-numericNumeric versus Non-numeric Stochastic versus DeterministicStochastic versus Deterministic

Analytical versus DescriptiveAnalytical versus Descriptive Diagrammatic versus TextualDiagrammatic versus Textual Complex, multifaceted versus Complex, multifaceted versus

Simple, single dimensionSimple, single dimension

Characteristics of “Good” ModelCharacteristics of “Good” Model

Realistic – Should include all “important” Realistic – Should include all “important” variables of the real problemvariables of the real problem

Capable – Should be able to integrate the Capable – Should be able to integrate the variables into the algorithmvariables into the algorithm

Flexible – Should handle various combinations of Flexible – Should handle various combinations of variables, including new onesvariables, including new ones

Easy to use – Should be intuitive, not requiring a Easy to use – Should be intuitive, not requiring a long or steep learning curvelong or steep learning curve

Computerized – To alleviate the workload of Computerized – To alleviate the workload of using itusing it

Non-numeric Selection ModelsNon-numeric Selection Models

Sacred Cow (The boss wants it)Sacred Cow (The boss wants it) Mandatory due to operationsMandatory due to operations Mandatory due to competitionMandatory due to competition Mandatory due to legislation (legal)Mandatory due to legislation (legal) Extension of existing activities, projects, Extension of existing activities, projects,

products, or processesproducts, or processes Comparative Benefits (Opinion based)Comparative Benefits (Opinion based)

• DiscussionDiscussion• DelphiDelphi• Q-SortQ-Sort

Q-Sort

Numeric PS Models:Numeric PS Models:Profit / ProfitabilityProfit / Profitability

Payback Period (PB)Payback Period (PB) Average Rate of ReturnAverage Rate of Return Discounted Cash Flow (NPV)Discounted Cash Flow (NPV) Internal Rate of ReturnInternal Rate of Return Profitability IndexProfitability Index

Numeric PS Models:Numeric PS Models:ScoringScoring

Unweighted 0-1 Unweighted 0-1 Factor ModelFactor Model

Unweighted Factor Unweighted Factor Scoring ModelScoring Model

Weighted Factor Weighted Factor Scoring ModelScoring Model

Constrained Constrained Weighted Factor Weighted Factor Scoring ModelScoring Model

S = S = ∑(x), x=0,1∑(x), x=0,1

S = ∑(s), s=scoreS = ∑(s), s=score

S = ∑(s·w), w=weightS = ∑(s·w), w=weight

S = ∑(s·w) ∏(c), S = ∑(s·w) ∏(c), c=constraintc=constraint

Benefits of Scoring ModelsBenefits of Scoring Models

Structurally simpleStructurally simple Multiple decision criteriaMultiple decision criteria Easy to modifyEasy to modify Easy to do “what if” or sensitivity Easy to do “what if” or sensitivity

analysisanalysis Weights provide flexibilityWeights provide flexibility

Drawbacks of Scoring ModelsDrawbacks of Scoring Models

It is a “ranking” method, but does NOT It is a “ranking” method, but does NOT necessarily represent “true” valuenecessarily represent “true” value

Quantitative value may cause Quantitative value may cause decisions without “judgment”decisions without “judgment”

Assigning values sometimes is Assigning values sometimes is haphazardhaphazard

Input value changes (assumptions) Input value changes (assumptions) may cause large swings in resultsmay cause large swings in results

Choosing the PS ModelChoosing the PS Model

Firms with outside funding often Firms with outside funding often chose scoring PS modelschose scoring PS models

Firms without outside funding often Firms without outside funding often chose profit / profitability PS chose profit / profitability PS modelsmodels

80% of Fortune 500 firms also use 80% of Fortune 500 firms also use “nonnumeric” PS models“nonnumeric” PS models

Risk Analysis with Crystal BallRisk Analysis with Crystal Ball

Including Risk Analysis – Including Risk Analysis – Stochastic ModelsStochastic Models

Instead of assigning a fixed value to Instead of assigning a fixed value to a raw score, assign a range of values a raw score, assign a range of values and a probability.and a probability.

Probability is usually more “realistic” Probability is usually more “realistic” It may also be more “correct”It may also be more “correct”

Areas of UncertaintyAreas of Uncertainty

Project Project timingtiming & expected & expected cash cash flowflow..

Direct Direct outcomeoutcome of project, i.e. what of project, i.e. what exactly will the project accomplishexactly will the project accomplish

Side effectsSide effects and unforeseen and unforeseen consequences of projectconsequences of project

Introduction to Introduction to Monte Carlo TechniqueMonte Carlo Technique

Outputs are a result of an algorithmic Outputs are a result of an algorithmic combination of inputscombination of inputs

if the inputs cannot be determined with if the inputs cannot be determined with confidence, then provide a probability rangeconfidence, then provide a probability range

Monte Carlo Simulation picks an input value, Monte Carlo Simulation picks an input value, based on the probability function, for each based on the probability function, for each variable and calculates the result from the variable and calculates the result from the algorithmalgorithm

This is done numerous times (500 or 1000) This is done numerous times (500 or 1000) and the results are plottedand the results are plotted

Crystal BallCrystal Ball A Monte Carlo Tool that plugs into A Monte Carlo Tool that plugs into

ExcelExcel Any formula or calculation that can be Any formula or calculation that can be

done in Excel can be modified to use done in Excel can be modified to use probabilities and Monte Carlo probabilities and Monte Carlo SimulationSimulation

Probability Distributions for InputsProbability Distributions for Inputs

Risk Analysis: OutputRisk Analysis: Output

Self AssessmentSelf Assessment

What are some of the roles of the What are some of the roles of the PMO in project selection?PMO in project selection?

What should be included in a project What should be included in a project proposal?proposal?

How does a Q-Sort work?How does a Q-Sort work? How does a Scoring Model work? How does a Scoring Model work? What is a Monte Carlo technique? What is a Monte Carlo technique? What is Crystal Ball? How does it What is Crystal Ball? How does it

work? work?

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