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Why do we need to do this …
• There is always too much work to do…
• “Offhand project selection leads to ineffective use of resources. Support of a project to satisfy short-term exigencies may lead to long term fiascos… If a truly good project prospect arises in the future, they may no longer have the resource to pursue it because their resources are tied up in marginal undertakings” (Frame, 1994)
• Need to Balance RISK versus VALUE
• Although sometimes we don’t have much choice …
– E.g. legislation, customer demands etc.
Learning Objectives
• To appreciate the sources of projects within a business context
• To understand alternative mechanisms to evaluate possible projects
• To link project selection to a wider strategic context.
Sources of new projects
• Market demand
• Business need
• Customer request
• Technological advance
• Legal requirement
• Crisis
Out of C
lass Acti
vity : I
ndividual or P
airs
Project Selection …
Identify specific projects for three of the sources. Provide a short summary (100 – 200 words) to communicate why this project ‘makes sense’.
https://www.youtube.com/watch?v=78CqcbwFeBA
Two Extremes …
Break-even
Fixed Costs
Variable Costs
Sales (Income)
Financial Project Evaluation
• Payback Period; how long to recover the costs incurred.
• Return on Investment; cash flow over the whole project.
• Discounted Cash Flow; i.e. £100 today does NOT equal £100 next year
– Net Present Value : value or worth added to the company by carrying out the project
– Internal Rate of Return : addresses profitability as a %
The Strategic Wrapper
Vision
Objectives
GoalsStrategies
Proposals Priorities
SelectionPortfolio
Evaluate
Control
Planning
Initiate
Frigenti & Comninos 2002 p.71
Project Proposal Document
Strategic & Business
Planning
S
O T
W PESTLIED
5 Forces
Project Proposal Document• Background / Context
• Organizational Need
• Options / Alternatives
• Purpose & Objectives
• Key Stakeholders
• Benefit Realisation Strategy
• Scope & Constraints
• Timing
• Assumptions
• Risks
Additional Information: PESTLIED
• Political Local, National International Factors
• Economic Interest rates, taxation
• Social Social trend/tolerance to organisation
• Technical Technological changes affecting demand
• Legal EU, Kyoto etc.
• International Exchange rates
• Environmental ‘Green issues’
• Demographic Availability / skill of workforce
Additional Information: 5 Forces
Industry Competitors
Suppliers Buyers
Substitutes
Potential Entrants
Porter (1985) Competitive Advantage
Additional Information: SWOT
Strengths Weaknesses
Opportunities Threats
Three approaches
• Checklist
• Scoring Matrix
• Value v Risk Appraisal
Project Appraisal Checklist
Production Method / Time / Disruption / Learning curve / Safety / External resource
Marketing No. of users / Market share / Customer acceptance / Image of company / New markets
Financial Payback, NPV, IRR / Cost of system / Borrowing Rqmt / Financial Risk
Personnel Skills / Training / Employment / Resistance / Ergonomics / Morale / Unions
Admin. Standards / Whole life costs / Customer service / Disaster recovery
Burke, 1999 p.49-52
Scoring Matrix
• Key Advantages:
– Objectivity & Visibility– Multiple Selection Criteria– Simple to Use– Selection Factors Chosen by Senior Mgmt – Defined at Strategic Level
• Key Disadvantages:
– Long-lists– Factors need weighting– Garbage in - Garbage out / Playing the Game
Scoring Matrix ExampleScores 1 – 5
5 = excellent ; 1 = poor
Weight (100)
Project A
Project AWeighted
Project B Project BWeighed
Profit Level 15 3 3x15= 45 5 5x15= 75
Time to Enter New Market
10 4 4x10= 40 1 1x10= 10
Increase in Mkt Share
13 5 5x13= 65 4 4x13= 52
Manage with existing workforce
24 4 4x24= 96 2 2x24= 48
Payback Period < 2yrs
20 5 5x20= 100
4 4x20= 80
Consistent with Current Business
18 1 1x8= 18 1 1x8= 18
TOTAL 100 364 283
Success vs ValueTime
WastersQuick Wins Quick Wins Strategic Strategic
Time Wasters
Quick Wins Quick Wins Strategic Strategic
Time Wasters
Time Wasters
Quick Wins Quick Wins Strategic
No-Hopers No-Hopers Quick Wins Quick Wins Strategic
No-Hopers No-Hopers No-Hopers Gambles Gambles
ValueHighLow
Risk
High
Low
Frigenti & Comnios 2002 p.114
Project AppraisalFINANCIAL
Overall financial evaluation ValueSTRATEGIC
Contribution to Strategy ValuePolitical / public perception ValueCompetitive advantage Value
ORGANISATIONAL / MANAGEMENTOrganizational Culture ValueContribution to employee satisfaction ValueChange Management RiskPace of Change RiskExecution capability Risk
TECHNICALContribution to corporate architecture ValueDefinitional uncertainty RiskTechnical uncertainty Risk
Frigenti & Comnios 2002 p.110 - 118
Value v Risk Appraisal
• Overall Financial Evaluation– Cashflow, NPV (costs v benefits over lifetime)
• Strategic– Contribute to Critical Success Factors– Effectiveness and / or Efficiency– Tension btwn today & 3-5 years hence
• Political / Public Perception– Serves a wider community
• Contestability– Advantage over service delivery competitors
• Organisational– Culture (e.g. centralisation / decentralisation)
• Contributes to Job Satisfaction– Service delivery, health & safety, paperwork, efficiency
• Change Management (Risk)– Can we facilitate change, change processes, acceptance
• Pace of Change (Risk)– Initiative overload
• Execution Capability (Risk)– New / untested skills, specialist expertise / mgmt capability
• Compatibility with corporate architecture
– Alignment with Current IT
• Definition Uncertainty (Risk)
– IT Risk in implementation – high probability of future changes increases risk as does long payback period
• Technical Uncertainty (Risk)
– New / Untried Technology
Weight Score Total1-10 1-5
FINANCIALOverall financial evaluation Value 10 4 40
STRATEGICContribution to strategy Value 10 5 50Political / public perception Value 5 4 20Competitive advantage Value 3 3 9
ORGANISATIONAL / MANAGEMENTOrganizational culture Value 8 4 32Cont.to employee satisfaction Value 5 5 25Change management Risk -8 2 -16Pace of change Risk -9 5 -45Execution capability Risk -6 1 -6
TECHNICALCont. to corp. architecture Value 5 5 25Definitional uncertainty Risk -5 3 -15Technical uncertainty Risk -5 3 -15
Total Value Score 201Total Risk Score -97Value-Risk Score 104
Out of C
lass Acti
vity : I
ndividual or P
airs
Project Selection …
Assuming you are planning to go on vacation for the first time.And that you will be doing this with 4 friends
Identify the specific VALUE & RISK criteria that you could use to evaluate proposals.
Provide a short summary (100 – 200 words) to communicate why this framework ‘makes sense’.
Graphical Representation of Priorities
Risk -150-100-500
200
100
0
Valu
e
A
K
HJ
I
GF
E
D
C
B
Which model to choose?
• Realism
• Capability
• Flexibility
• Ease of Use
• Cost
• Easy Computerisation
Important Lessons
• Discipline
• Proposers will score own highly
• Owners should present them – commitment
• Who should prioritise them – not functional mgrs
• Needs training & consideration
Guided Readings
• Meredith & Mandell: Project Management: A Managerial Approach Chapter 2.
• Burke: Project Management: Planning & Control Techniques Chapter 5
• Frigenti & Comnios: The Practice of Project Management
