Factors that Affect Project Selection
In any organization, project selection is influenced by the available resources. When money is short, organizations often terminate existing projects and postpone investing in new ones. For example, in 2015, the worldwide drop in oil prices forced oil companies to postpone $380 billion in projects, such as new deep-water drilling operations (Scheck, 2016).
An organization’s project selection process is also influenced by the nature of the organization. At a huge aerospace technology corporation, for example, the impetus for a project nearly always comes from the market and is loaded with government regulations. Such projects are decades-long undertakings, which necessarily require significant financial analysis. On the other hand, at a consumer products company, the idea for a project often originates inside the company as a way to respond to a perceived consumer demand. In that case, with less time and fewer resources at stake, the project selection process typically proceeds more quickly.
Size is a major influence on an organization’s project selection process. At a large, well-established corporation, the entrenched bureaucracy can impede quick decision-making. By contrast, a twenty-person start-up can make decisions quickly and with great agility.
Value and Risk
Keep in mind that along with the customer’s definition of value comes the customer’s definition of the amount of risk he or she is willing to accept. As a project manager, it’s your job to help the customer understand the nature of possible risks inherent in a project, as well as the options for and costs of reducing that risk. It’s the rare customer who is actually willing or able to pay for zero risk in any undertaking. In some situations, the difference between a little risk and zero risk can be enormous. This is true, for instance, in the world of computer networking, where a network that is available 99.99% of the time (with 53 minutes and 35 seconds of down time a year) costs much less than a network that is 99.999% available (with only 5 minutes and 15 seconds of down time a year) (Dean, 2013, p. 645). If you’re installing a network for a small chain of restaurants, shooting for 99.99% availability is a waste of time and money. By contrast, on a military or healthcare network, 99.999% availability might not be good enough.
Identifying the magnitude and impact of risks, as well as potential mitigation strategies, are key elements of the initial feasibility analysis of a project. Decision-makers will need that information to assess whether the potential value of the project outweighs the costs and risks. Risk analysis will be addressed further in chapter nine. For some easy-to-digest summaries of the basics of risk management, check out the many YouTube videos by David Hillson, who is known in the project management world as the Risk Doctor. Start with his video named “Risk Management Basics: What Exactly Is It?”
The Project Selection Process
No matter the speed at which its project selection process plays out, successful organizations typically build in a period of what Scott Anthony calls “staged learning,” in which the project stakeholders expand their knowledge of potential projects. In an interesting article in the Harvard Business Review, Anthony compares this process to the way major leagues use the minor leagues to learn more about the players they want to invest in. In the same way, consumer product companies use staged learning to expose their products to progressively higher levels of scrutiny, before making the final, big investment required to release the product to market (Anthony, 2009).
You can think of the project selection process as a series of screens that reduce a plethora of ideas, opportunities, and needs to a few approved projects. From all available ideas, opportunities, and needs, the organization selects a subset that warrant consideration given their alignment with the organization’s strategy. As projects progress, they are subjected to a series of filters based on a variety of business and technical feasibility considerations. As shown in Figure 2-9, projects that pass all screens are refined, focused, and proceed to execution.
This same concept is applied in Stage-Gate™ or phase-gate models, in which a project is screened and developed as it passes through a series of stages/phases and corresponding gates. During each stage/phase, the project is refined, and at each gate a decision is required as to whether the project warrants the additional investment needed to advance to the next stage/phase of development. “The typical Stage-Gate new product process has five stages, each stage preceded by a gate. Stages define best-practice activities and deliverables, while gates rely on visible criteria for Go/Kill decisions” (Cooper, et al., 2000).
This approach is designed to help an organization make decisions about projects where very limited knowledge is available at the outset. The initial commitment of resources is devoted to figuring out if the project is viable. After that, you can decide if you are ready to proceed with detailed planning, and then, whether to implement the project. This process creates a discipline of vetting each successive investment of resources and allows safe places to kill the project if necessary.
Another approach to project selection, set-based concurrent engineering, avoids filtering projects too quickly, instead focusing on developing multiple solutions through to final selection just before launch. This approach is expensive and resource-hungry, but its proponents argue that the costs associated with narrowing to a single solution too soon—a solution that subsequently turns out to be sub-optimal—are greater than the resources expended on developing multiple projects in parallel. Narrowing down rapidly to a single solution is typical of many companies in the United States and in other western countries. Japanese manufacturers, by contrast, emphasize developing multiple options (even to the point of production tooling).
In an article for the International Project Management Association, Joni Seeber discusses some general project selection criteria. Like Michael Porter, she argues that first and foremost, you should choose projects that align with your organization’s overall strategy. She suggests a helpful test for determining whether a project meaningfully contributes to your organization’s strategy:
A quick and dirty trick to determining the meaningfulness of a project is answering the question “So what?” about intended project outcomes. The more the project aligns with the strategic direction of the organization, the more meaningful. The higher the likelihood of success, the more meaningful.
To illustrate, developing a vaccine for HIV is meaningful; however, developing a vaccine for HIV that HIV populations cannot afford is not. Size matters as well since the size of a project and the amount of resources required are usually positively correlated. Building the pyramids of Egypt may be meaningful, but the size of the project makes it a high-stake endeavor only suitable to pharaohs and Vegas king pins. (Seeber, 2011)
Project Selection Methods
Projects are selected by comparing the costs and benefits of potential projects. Some of the selection methods are more subjective than others, but all try to use a standard set of criteria
to determine which project is the best for an organization to pursue. Methods can include:
- Murder Boards. A group of experts (internal and external) attempt to “murder” a project proposal by pointing out its flaws and weaknesses. This can be very useful in high-risk projects where there is little data from previous projects from which we can learn, or in situations where the environment has changed significantly since the development of the original scope of the project. Participants in a murder board session are encouraged to be aggressive and not hold back in their attempt to murder the project.
- Qualitative Scoring Methods. Scoring methods can take a variety of factors into account. These can range from simple checklists to complex weighted scoring systems. Scoring systems can assist staff with evaluating the relative merit of different projects while limiting political influence. Scoring models might survey a wide variety of experts and have them rate the project in terms of importance to the company or relative chance of success. Scoring methods will be examined in the next section of this chapter.
- Economic Scoring Methods. These methods assess the ability of the project to help the bottom line, either by increasing profits or reducing costs. These models often look at the cash flow that a project will generate after it is completed. The final section of this chapter examines economic models in more detail.
- Constrained Optimization Methods. Constrained Optimization Methods of project selection are mathematically intensive means of analyzing a series of projects and are not easily generalized.
In project management, these methods can include:
- Linear Programming
- Dynamic Programming
- Branch and Bound Algorithms
- Integer Programming
We might also refer to Constrained Optimization Methods as mathematical approaches to project selection. These methods are beyond the scope of this text, but students preparing to take PMI exams should know that if they see any type of programming or algorithms used for project selection, a Constrained Optimization Method is being used.
This chapter of Project Management is a derivative the following texts:
Essentials of Project Management by Adam Farag is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.