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WHY DO PROJECT MANAGERS NEED TO UNDERSTAND STRATEGY – The need to understand the Strategic Management Process

• There are 2 main reasons as to why project managers need to understand their organisation’s mission and strategy.

• The first reason is that: - So, that the project managers can make appropriate decisions and

adjustments, when responding to changes. - For example, how a project manager would respond to a suggestion to

modify the design of a product to enhance performance will vary depending on whether his company strives to a product leader through innovation, or to achieve operational excellence through low-cost solutions.

• The second reason is that: - Project managers need to understand their organisation’s strategy is so

they can be effective project advocates, aligned with the firm’s mission. - For example, even during difficult times such as the changing of

ownership.

THE STRATEGIC MANAGEMENT PROCESS: AN OVERVIEW Strategic management is the process of assessing “what we are” and deciding and implementing “what we intend to be, and how we are going to get there.”

- Strategy describes how an organisation intends to compete with the resources available in the existing, and perceived future environment.

- It provides the theme and focus of the future direction for the firm; it supports consistency of action at every level of the organisation; it encourages integration because effort and resources are committed to common goals and strategies.

- Includes responding to changes in the external environment – environmental scanning.

- Allocating scarce resources of the firm to improve its competitive position – internal responses to new action programs.

- Requires strong links among mission, goals, objectives, strategy and implementation.

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4 ACTIVITIES OF THE STRATEGIC MANAGEMENT PROCESS The typical sequence of activities of the strategic management process is as follows:

(1) Review and define the organisational mission. (2) Set long-range goals and objectives. (3) Analyse and formulate strategies to reach objectives. (4) Implement strategies through projects.

Step 1: Review and define the organisational mission.

• Identifies “what we want to become”. - A mission statement provides focus for decision making when shared by organisational managers and employees. - Mission statements change infrequently; however, when the nature of the business changes or shifts, a revised mission statement may be required. Step 2: Set long-range goals and objectives.

• Objectives translate the organisation’s mission into specific, concrete and measurable terms. - These objectives set targets for all levels of the organisation. - Typically, objectives for the organisation cover markets, products, innovation, productivity, quality, finance, profitability, employees and customers.

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- In every case, objectives should be as operational as possible. These should include a time frame, be measurable, be an identifiable state and be realistic. - The characteristics of objectives:

S Specific Be specific in targeting an objective.

M Measurable Establish a measurable indicator(s) of progress.

A Assignable Make the objective assignable to one person for completion.

R Realistic State what can be realistically be done with available resources.

T Time Related State when the objective can be achieved, that is, duration.

Step 3: Analyse and formulate strategies to reach objectives.

• Means answering the question of “what” needs to be done to reach objectives. - These include determining and evaluating alternatives that support the organisation’s objectives, and selecting the best alternative. - First step is to do a realistic evaluation of the past and current position of the enterprise; the next step is an assessment of the internal and external environments, known as the SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats). - From this analysis, critical issues and a portfolio of strategic alternatives are identified. These alternatives are compared with the current portfolio, and available resources; strategies that are selected should support the basic mission and objectives of the organisation. Step 4: Implement strategies through projects.

• Implementation responds to the question of how the strategies will be realised, given available resources.

• Implementation requires action and completing tasks, and must include attention to 5 key areas: [1] Completing tasks requires the allocation of resources. [2] Requires a formal and informal element of the organisation that complements and supports strategy and projects. [3] Planning and control systems must be in place to be certain that project activities, which are necessary to ensure strategies, are effectively performed. [4] Motivating project team members and stakeholders will be major factor for achieving project success. [5] Prioritising projects – by ranking them in terms of financial payback, or deciding which projects receive approval and resources within a given time frame.

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THE NEED FOR AN EFFECTIVE PROJECT PORTFOLIO MANAGEMENT SYSTEM Implementation of a projects without a strong priority system linked to strategy creates problems.

- A project portfolio system can go a long way to reduce, or even eliminate, the impact of these 3 most obvious problems:

PROBLEM 1: THE IMPLEMENTION GAP This is the lack of consensus between the goals set by top management, and those independently set by lower levels of management (middle-level, functional managers). This lack of consensus leads to confusion and poor allocation of organisation resources.

- This is the lack of understanding and consensus of organisation strategy among senior and middle-level managers.

PROBLEM 2: ORGANISATIONAL POLICTICS Project selection is based on the persuasiveness and power of the people advocating the projects.

- Having a project sponsor (a senior manager who funds, endorses, and politically supports the project) can play a significant role in the selection and successful implementation of product innovation projects.

- Projects and politics invariably mix, and effective project managers recognise that any significant project has at least some corporate political ramifications.

- Senior management needs to develop a system for identifying and selecting projects that reduces the impact of internal politics, and fosters the selection of the best projects for achieving the mission and strategy of the company.

PROBLEM 3: RESOURCE CONFLICTS AND MULTITASKING The multiproject environment creates interdependency relationships and the need for shared resources, which results in the starting, stopping and restarting of one project to work on another project, and so on (coming back again, going back again…).

- A multiproject organisation environment faces major problems without a priority system that is clearly linked to the strategic plan.

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BENEFITS OF PROJECT PORTFOLIO MANAGEMENT - Builds discipline into project selection process. - Links project selection to strategic metrics. - Prioritises project proposals across a common set of criteria, rather than

on politics or emotion. - Allocates resources to projects that align with strategic direction. - Balances risk across all projects. - Justifies killing projects that do not support organisation strategy. - Improves communication and supports agreement on project goals.

A PORTFOLIO MANAGEMENT SYSTEM

CLASSIFCATION OF THE PROJECT (BY TYPE) COMPLIANCE – Typically those needed to meet regulatory conditions required to operate in a region; hence they are called “must-do” projects. OPERATIONAL – Those that are needed to support current operations; such as improving the efficiency of delivery systems, reducing product costs and improving performance. STRATEGIC – Those that directly support the organisation’s long run mission; such as increasing revenue or market share. Examples include new products and R&D.

SELECTION CRITERIA Typically identified as financial and non-financial.

• FINANCIAL – Includes payback, NPV (Business Finance, Corporate Finance), IRR (Internal Rate of Return)

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• NON-FINANCIAL – Other criteria that are considered beyond direct financial return. - For example, organisations may support projects to restore corporate image or enhance brand recognition, even if it is not directly financially beneficial.

2 MULTICRITERIA SELECTION MODELS Since no single criterion can reflect strategic significance, portfolio management requires multicriteria screening models. These models often weight individual criteria so those projects that contribute to the most important strategic objectives are weighted accordingly, and can be given higher consideration. MODEL 1: THE CHECKLIST Basically, using a list of questions to review potential projects and to determine their acceptance or rejection. MODEL 2: MULTIWEIGHTED SCORING MODELS This model uses several weighted selection criteria to evaluate project proposals; generally, they include both qualitative and/or quantitative criteria.

• Each selection criterion is assigned a weight. Scores are assigned to each criterion for the project, based on its importance to the project being evaluated.

• The weights and scores are multiplied to get a total weighted score for the project.

• A project screening matrix is a matrix used during the project screening process to list projects against categories of screening criteria, weighting and evaluating them for the purpose of ranking project suitability.

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