Project Selection
METHODS FOR SELECTING PROJECTS
*The main criteria for program selection are the coordination and benefits available by grouping projects* -Focus on competitive strategy and broad organizational needs -Perform net present value analysis or other financial projections -Use a weighted scoring model -Implement a balanced scorecard -Address problems, opportunities, and directives -Consider project time frame -Consider project priority *An organization's overall business strategy should guide the project selection process and management of those projects* *financial methods , weighted scoring models; balanced scorecards; addressing problems, opportunities, and directives; project time frame; and project priority*
To create a weighted scoring model:
-Identify criteria important to the project selection process -Assign a weight to each criterion (so they add up to 100 percent) -Assign numerical scores to each criterion for each project -Calculate the weighted scores by multiplying the weight for each criterion by its score and adding the resulting values
PERFORMING FINANCIAL PROJECTIONS
-Net present value analysis -Return on investment -Payback analysis
SWOT analysis
-Strengths, Weaknesses, (SW = Internal Factors) Opportunities, and Threats (OT = External Factors) -It can help you identify potential projects, as is shown in the example about four people trying to start a new business
Net present value (NPV) analysis
-a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time -NPV means the return from a project exceeds the opportunity cost of capital—the return available by investing the capital elsewhere -Projects with higher NPVs are preferred to projects with lower NPVs if all other factors are equal
Strategic planning
-determining long-term objectives by analyzing the strengths and weaknesses of an organization, studying opportunities and threats in the business environment, predicting future trends, and projecting the need for new products and services -provides important information to help organizations identify and then select potential projects -usually *3-5* years out *The four-stage planning process helps organizations align their projects with their business strategy*
Payback period
-the amount of time it will take to recoup—in the form of net cash inflows—the total dollars invested in a project -Payback occurs in the year when the cumulative benefits minus costs reach zero -The shorter the payback period, the better
PROJECT TIME FRAME
Another approach to project selection is based on the time it will take to complete a project or the date by which it must be done
PROJECT PRIORITY
Many organizations prioritize projects as being high, medium, or low priority based on the current business environment Organizations should always focus on high-priority projects
THREE-SPHERE MODEL FOR SYSTEMS MANAGEMENT
Organization - Business - Technology
Why start a new project?
Problems Opportunities Directives
EXAMPLE BENEFITS OF PROGRAMS
Save money Save time Increase authority
program
a group of projects managed in a coordinated way to obtain benefits and control not available from managing them individually
weighted scoring model
a tool that provides a systematic process for selecting projects based on many criteria
Opportunities
chances to improve the organization
Directives
new requirements imposed by management, government, or some external influence.
Return on investment (ROI)
subtracting the project costs from the benefits and then dividing by the costs.
*systems thinking*
taking a holistic view of a project and understanding how it relates to the larger organization.
required rate of return
the minimum acceptable rate of return on an investment +15% usually
Problems
undesirable situations that prevent an organization from achieving its goals - can be current or anticipated
internal rate of return (IRR)
what discount rate results in an NPV of zero for the project
