Organization Strategy and

Project Selection
By: Ahsan Ali Siddiqi
Outline
 Explain why it is important for project managers to understand
their organization’s strategy.
 Identify the significant role projects contribute to the strategic
direction of the organization.
 Understand the need for a project priority system.
 Apply financial and nonfinancial criteria to assess the value of
projects.
 Understand how multi-criteria models can be used to select
projects.
 Apply an objective priority system to project selection.
 Understand the need to manage the project portfolio.
Where are we Now
 Strategy is implemented through projects.
Every significant project should have a clear
link to the organization’s strategy.
 Strategy and Project Management
 Companies today are under enormous pressure to manage a process that clearly aligns projects to
organization strategy.
 Strategy is fundamentally deciding how the organization will compete. Organizations use projects to
convert strategy into new products, services, and processes needed for success.
 For example, Intel’s major strategy is one of differentiation. Its projects target innovation and time to
market. Procter and Gamble, NEC, General Electric, and AT&T have reduced their cycle times by
20–50 percent through projects. Toyota and other auto manufacturers are now able to design and
develop new cars in two to three years instead of five to seven.
 Projects and project management play the key role in supporting strategic goals. It is vital for project
managers to think and act strategically.
 Ample evidence still suggests that many organizations have not developed a process that clearly
aligns project selection to the strategic plan. The result is poor utilization of the organization’s
resources—people, money, equipment, and core competencies.
Why Project Managers Need to Understand
Strategy
 Historically, Project management has been preoccupied solely with the planning
and execution of projects. Strategy was considered to be under the purview of
senior management.
 But according to modern thinkers, project management is at the apex of strategy
and operations.
 There are two main reasons why project managers need to understand their
organization’s mission and strategy.
 First, they must respond to changes with appropriate decisions about future
projects and adjustments to current projects.
 Second, Project managers who understand their organization’s strategy can
become effective advocates of projects aligned with the firm’s mission.
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 organization intends to compete with the resources available in the
existing and perceived future environment.
 Two major dimensions of strategic management are
 Responding to changes in the external environment
 Allocating scarce resources of the firm to improve its competitive position.
 Strategic management requires strong links among mission, goals, objectives, strategy, and
implementation.
 The mission gives the general purpose of the organization. Goals give global targets within
the mission. Objectives give specific targets to goals. Objectives give rise to formulation of
strategies to reach objectives. Finally, strategies require actions and tasks to be
implemented.
Four Activities of the Strategic Management
Process
1. Review and define the organizational mission.

2. Set long-range goals and objectives.

3. Analyze and formulate strategies to reach objectives.

4. Implement strategies through projects

Strategic
Management
Process
Strategic Management Process

1. Review and Define the Organizational Mission

 The mission identifies “what we want to become,”
 The mission statement communicates and identifies the purpose of the
organization to all stakeholders.
 Mission statements can also be used for evaluating organization
performance.
 Traditional components found in mission statements are major products
and services, target customers and markets, and geographical domain.
 In addition, statements frequently include organizational philosophy, key
technologies, public image, and contribution to society.
Strategic Management Process
2. Analyze and Formulate Strategies
 Formulating strategy answers the question of what needs to be done to reach objectives.
 Strategy formulation includes determining and evaluating alternatives that support the
organization’s objectives and selecting the best alternative.
 The first step is a realistic evaluation of the past and current position of the enterprise. This
step typically includes an analysis of customers and their needs.
 The next step is an assessment of the internal and external environments, commonly
known as SWOT Analysis.
 Internal environment could be core competencies, such as technology, product quality,
management talent, low debt, and dealer networks.
 Opportunities and threats for change exist in the external environment, such as technology,
industrial structure, and competition.
 From this analysis, critical issues and strategic alternatives are identified.
 Strategy formulation ends with cascading objectives or projects assigned to lower
divisions, departments, or individuals
 Strategic Management Process
3. Set Objectives to Achieve Strategies

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 realistically be done with

available resources

T Time related State when the objective can be achieved,

that is, duration

Typically, objectives for the organization cover markets, products, innovation,

productivity, quality, finance, profitability, employees, and consumers.
 Strategic Management Process
4. Implement Strategies through Projects
 Implementation answers the question of how strategies will be realized, given
available resources.
 Implementation requires action and completing tasks, therefore, implementation must
include attention to several key areas.
 First, completing tasks requires allocation of resources.
 Second, implementation requires a formal and informal organization that
complements and supports strategy and projects.
 Third, planning and control systems must be in place to be certain project activities
necessary to ensure strategies are effectively performed.
 Fourth, motivating project contributors will be a major factor for achieving project
success.
 Finally, areas receiving more attention in recent years are portfolio management and
prioritizing projects.
 The Need for a Project Priority System
 Implementation of projects without a strong priority system linked to strategy creates problems.
 Three of the most obvious problems are:
Problem 1: The Implementation Gap
 The lack of understanding and consensus on strategy among top management and middle-level
(functional) managers who independently implement the strategy.
Problem 2: Organization Politics
 Project selection is based on the persuasiveness and power of people advocating the projects.
 The role of project sponsor is crucial in the selection and successful implementation of product
innovation projects.
Problem 3: Resource Conflicts and Multitasking
 Multiproject environment creates interdependency relationships of shared resources which results
in the starting, stopping, and restarting projects.
Benefits of Project Priority System

 Builds discipline into the project selection process.

 Links project selection to strategic metrics.
 Prioritizes 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 strategy.
 Improves communication and supports agreement on project goals.
A Portfolio Management System

 Classification of a project
 Selection criteria depending upon classification
 Sources of proposals
 Evaluating proposals
 Managing the portfolio of projects.
Portfolio of Projects by Type
Selection Criteria
Financial Criteria
 For most managers financial criteria are the preferred method to evaluate projects.
 The financial models are appropriate when there is a high level of confidence associated
with estimates of future cash flows.
 The tools used to evaluate financial criteria are Payback Period, Net Present Value (NPV)
and Internal Rate of Return (IRR).
Non Financial Criteria
 Financial criteria does not always reflects strategic importance.
 Long-term survival of an organization is dependent upon developing and maintaining core
competencies.
 Companies have to be disciplined in saying no to potentially profitable projects that are
outside the realm of their core mission.
 The two non-financial criteria for project selection are Checklist Model and Multi-
Weighted Scoring Model.
Financial Criteria
The Payback Model
 Measures the time the project will take to recover
the project investment.
 Uses more desirable shorter paybacks.
 Emphasizes cash flows, a key factor in business.
Limitations of Payback:
 Ignores the time value of money.
 Assumes cash inflows for the investment period
(and not beyond).
 Does not consider profitability.
Formula of Payback
 If cash inflow is constant
Payback period (yrs) = Estimated Project Cost/Annual Savings
 For Discounted Pay back Period
Example Comparing Two Projects
Using Payback Method
Financial Criteria

 The Net Present Value (NPV) model

 Uses management’s minimum desired rate-of-return (discount rate) to compute the present value
of all net cash inflows.

 Positive NPV: project meets minimum desired rate

of return and is eligible for further consideration.
 Negative NPV: project is rejected.
Example Comparing Two Projects
Using Net Present Value Method
 Nonfinancial Strategic Criteria
 Financial return, while important, does not always reflect strategic importance. Today long-term survival of
an organization is dependent upon developing and maintaining core competencies.
 Companies have to be disciplined in saying no to potentially profitable projects that are outside the realm of
their core mission. This requires other criteria be considered beyond direct financial return.
 Therefore, a firm may support projects that do not offer high profit margins, because;
 To capture larger market share
 To make it difficult for competitors to enter the market
 To develop an enabler product, which by its introduction will increase sales in more profitable products
 To develop core technology that will be used in next-generation products
 To reduce dependency on unreliable suppliers
 To prevent government intervention and regulation
 Two Non-Financial Multi-Criteria Selection
Models
1. Checklist Model
 The most frequently used method in selecting projects has been the checklist method.
 This approach basically uses a list of questions to review potential projects and to determine
their acceptance or rejection.
 One large, multiproject organization has 250 different questions!
 The key advantage of checklist models is that they allow great flexibility in selecting among
many different types of projects and are easily used across different divisions and locations.
 But the major shortcomings of this approach are that it fails to answer the relative importance
or value of a potential project to the organization and fails to allow for comparison with other
potential projects, because potential project have a different set of positive and negative
answers.
 Also, this approach leaves the door open to the potential opportunity for power plays, politics,
and other forms of manipulation.
 Sample Selection Questions Used in Practice

Topic Question
Strategy/alignment What specific strategy does this project align with?

Driver What business problem does the project solve?

Success metrics How will we measure success?

Sponsorship Who is the project sponsor?

Risk What is the impact of not doing this project?

Risk What is the project risk to our organization?

Risk Where does the proposed project fit in our risk profile?

Benefits, value, ROI What is the value of the project to this organization?

Benefits, value, ROI When will the project show results?

Objectives What are the project objectives?

 Sample Selection Questions Used in Practice

Topic Question
Organization culture Is our organization culture right for this type of project?

Resources Will internal resources be available for this project?

Approach Will we build or buy?

Schedule How long will this project take?

Schedule Is the time line realistic?

Training/resources Will staff training be required?

Finance/portfolio What is the estimated cost of the project?

Portfolio Is this a new initiative or part of an existing initiative?

Portfolio How does this project interact with current projects?

Technology Is the technology available or new?

 Two Non-Financial Multi-Criteria Selection
Models
2. Multi-Weighted Scoring Model
 Uses several weighted qualitative and/or quantitative selection criteria to evaluate project
proposals.
 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.
 Using these multiple screening criteria, projects can then be compared using the weighted
score.
 Projects with higher weighted scores are considered better.
 The major advantage of using multi-weighted scoring model is that it allows comparison of
projects with other potential projects
Project Screening Matrix
 Applying a Selection Model
 Project Classification
 Deciding how well a strategic or operations project fits the
organization’s strategy.
 Selecting a Model
 Applying a weighted scoring model to bring projects to closer
with the organization’s strategic goals.
 Reduces the number of wasteful projects
 Helps identify proper goals for projects
 Helps everyone involved understand how
and why a project is selected
 Project Proposals
 Sources and Solicitation of Project Proposals
 Within the organization
 Request for proposal (RFP) from external sources (contractors and
vendors)
 Ranking Proposals and Selection of Projects
 Prioritizing requires discipline, accountability, responsibility,
constraints, reduced flexibility,
and loss of power.
 Managing the Portfolio
 Senior management input
 The priority team (project office) responsibilities
A Proposal Form for
an Automatic
vehicular tracking
(AVL) Public
Transportation Project
Risk Analysis
for
500-Acre
Wind Farm
Managing the Portfolio
 Senior Management Input
 Provide guidance in selecting criteria that are aligned with the
organization’s goals
 Decide how to balance available resources among current
projects
 The Priority Team Responsibilities
 Publish the priority of every project
 Ensure that the project selection process is open and free of
power politics.
 Reassess the organization’s goals and priorities
 Evaluate the progress of current projects
Project Screening
Process
Project Portfolio Matrix
 Project Portfolio Matrix Dimensions
 Bread-and-butter Projects
 Involve evolutionary improvements to current products and services.
 Examples include software upgrades and manufacturing cost reduction efforts.
 Pearls
 Represent revolutionary commercial opportunities using proven technical advances.
 Examples include next-generation integrated circuit chip and subsurface imaging to locate oil and gas.
 Oysters
 Involve technological breakthroughs with high commercial payoffs.
 Examples include embryonic DNA treatments and new kinds of metal alloys
 White Elephants
 Showed promise at one time but are no longer viable.
 Examples include products for a saturated market or a potent energy source with toxic side-effects.