PROJECT MANAGEMENT

PROJECT SELECTION
How to choose the right projects to
meet
your objectives and resources?

PROJECT SELECTION

Project selection is about how to

choose the right projects to meet
your objectives and resources

PROJEC SELECTION
How to choose between projects?
Prioritize projects against objectives.
The better a project meets your
objectives, the higher priority it has.
Projects with higher priority have priority
access to budget.
The goal is to find portfolio that meets
your budget with the highest total
priority of included projects.

PROJEC SELECTION
Selecting projects is not an exact science, but it is a
critical part of the project management.
Many METHODS exist for selecting from among possible
projects, including:
Aligning projects with business strategy
Focusing on broad organizational needs
Performing Project Valuation
Using a Weighted Scoring Model
Addressing Problems, Opportunities and Directives

PROJECT SELECTION
ALIGNING PROJECT WITH BUSINESS STRATEGY/
FOCUSING ON COMPETITIVE STRATEGY
Project Selection is a process to assess each project and
select the project with the highest priority that meet
our budgets.
An organizations business strategy should guide the
prioritization of those projects.
Always look at the strategic goal to determine what
project will provide the most value: Examples: A firm
with competitive strategy on costs will select projects
directly tied to such strategy.

PROJECT SELECTION
FOCUSING ON BROAD ORGANIZATIONAL NEEDS

We are a great place to work Is that really

true?
What resources, skills, training and support must
have staff in order to work effectively?
Examples:
Improving software for administrative processes
Automatized repetitive manual processes

PROJECT SELECTION
PERFORMING PROJECT VALUATION
Its about measuring the financial value of projects.
Remember that the financial value is created by
positive cash flows.
Benefits (Cash Inflows less Cash Outflows) are calculated and
then compared to with other project to make a decision.
Most common methods for determining the financial value
of projects include:
NET PRESENT VALUE
RETURN ON INVESTMENT
PAYBACK PERIOD

PROJECT SELECTION
NET PRESENT VALUE (NPV)
A method for calculating the expected gain or
loss from a project by discounting all expected
future cash flows to the present point in time.
An organization should consider only projects
with positive NPV
A positive NPV means the return from a projects
is higher than the opportunity cost of capital.

PROJECT SELECTION
RETURN ON INVESTEMENT (ROI)
Measure the profit for the project as a
percentage of the investment.
If a firm invest $ 100 million today and next
year its investment is worth $ 110 million, the
firms ROI is ($110-$100)/$100 = 10%
It is best to consider present or discounted
value for projects longer than 1 year to
determine ROI.

PROJECT SELECTION
RETURN ON INVESTEMENT (ROI)
The higher the ROI, the better
Many firms has a required rate of return for
projects.
The required rate of return is the minimum
acceptable rate of an investment.

PROJECT SELECTION
PAYBACK PERIOD
Payback period is the time required to recover the
money invested in a project. How much time will
take before cash inflows exceeds the cash
outflows?
Assume a project cost $ 100 million up front with
no additional investments. Also its annual
benefits are of $ 10, $20, $25, $25 and $30
millions over the following years. Calculate the
Payback Period for this project.

PROJECT SELECTION
PAYBACK PERIOD
Many firms have certain rules for the length
of the Payback Period of an investment. For
example, a firm may require all IT Projects to
have a Payback Period of less than 2 years,
regardless of the estimated NPV or ROI.
Q. Is it convenient to reduce the size of the
teams to reduce and meet the Payback Period
set by the firm? Why? Explain.

PROJECT SELECTION
USING A WEIGHTED SCORING MODEL
Each project is scored against the selection criteria
and a score for each project is calculated.
By ranking the projects from the highest to the
lowest we can identify which project has the
highest priority.
These criteria include factors as: meeting strategic
goals, broad organizational needs, financial
performance of the projects, etc.

PROJECT SELECTION
USING A WEIGHTED SCORING MODEL
The first step in creating a weighted scoring model is to
identify the relevant criteria for selection and then
allocate weights.
It often takes time to develop and reach an agreement
on those criteria and weights. Why?
Projects with highest scores are selected.
But what if the projects are sensitive to the criteria and
weights.

PROJECT SELECTION
ADDRESSING PROBLEMS, OPPORTUNITIES
AND DIRECTIVES
Another method for selecting projects is based on their
response to a problem, opportunity or a directive.
Problems are undesirable situation that prevent an
organization from achieving its goals.
Opportunities are chances to improve the organization
Directives are new requirements imposed by board of
directors, senior managers, government or regulators.