COST MANAGEMENT 642 - Paper 4

PROJECT SELECTION I - INTRODUCTION

COST MANAGEMENT 642 - Paper 4

1.0. INTRODUCTION

2.0. PROJECT SELECTION - SELECTION CRITERIA

3.0. WHO SELECTS PROJECTS ? 4.0. DATA FOR PROJECT SELECTION 5.0. PROJECT SELECTION METHODOLOGIES

PROJECT SELECTION - INTRODUCTION

PS = process of evaluating project proposals PS is important: Time distinguishes firms that select best projects. They survive. PS = future commitment. We live with to-days decisions PS can involve: choosing between projects to achieve same objectives, choosing between projects aimed at a variety of objectives PS is difficult - proposed projects have different costs, benefits, risks So PS should be structured & rational

PS prioritises projects - not all can be done due to resource limits

Project Selection - Need for a Formal Process

Avoids haphazard, ill-considered PS Minimise risk of selecting failures. Select projects with high success potential

Claimed benefits -properly detailed & rigorously challenged

Proposer knows what information is required in a project proposal. Provides audit trail of the decision process PS process should be reviewed periodically e.g., new review board members, review selection criteria

Project Selection - The Project Proposal

Projects arise from proposals submitted by organisation personnel.

Proposal documents Who, What, Why & How of project

PP should contain executive summary and deal with 4 issues: the problem that the project aims to address; the implementation plan if the project is accepted; the plan for support and administration; description of the project group Selected project should be formally authorised in a Project Charter

NON-CONSCIOUS PROJECT SELECTION

Many projects are selected on a non-conscious basis.

EG - secretary suddenly leaves - Select automatically type of project for replacement. eg., approach an agency Conscious approach - replacing secretary with a computerised filing system. Disadvantage - essentially reactive, and not proactive
Suitable - where project is small & has minimum consequences.

PROJECT SELECTION - QUESTION

1. "The project selection process is significantly influenced

by the type of organisation and its distinctive mission goals". In selecting projects, what might be the project selection criteria for the following types of organisations: Government Sector Private Sector Non-Profit Sector (eg., charities, professional associations)

PROJECT SELECTION - SELECTION CRITERIA

ORGANISATIONAL STRATEGIC OBJECTIVES PS requires a set of selection criteria Project proposer must be fully aware of these criteria PS criteria typically defined in terms of the product of the project Projects should be derived from organisation's strategic goals So, organisational strategic planning is a prerequisite for PS. Strategic planning will itself identify possible projects Objectives should be generated by organisations top management So, PS requires a list of organisational objectives for PS criteria Selection of IT projects in most cases, corporate strategic factors are rarely considered or are deemed irrelevant

PROJECT SELECTION - SELECTION CRITERIA

PS criteria can be derived from Strength, Weaknesses, Opportunities and Threats (SWOT) analysis from the strategic planning process. Leverage strengths, improve weakness, take advantage of opportunities, protect against threats.

PROJECT SELECTION - SELECTION CRITERIA

Identification of PS criteria should involve key stakeholders

Best effected through structured meetings or facilitated workshops, to create up-front agreement and organsizational buy-in
Duplicate or redundant criteria are eliminated and the rest are closely reviewed fro inclusion in the PS process Miller: 12-15 criteria sufficient for an effective PS of IT projects. Each criterion must have clear definition so that all stakeholders understand the true meaning and intent of each criterion

PROJECT SELECTION - Government Sector

Objectives - political, social, cultural, military, economic

Less concern with commercial aspects & profit

Politics commonly a major PS factor Characteristics of PS by government: PS based on need and mission goals need, time and scope = primary considerations cost = secondary but important factors

PROJECT SELECTION - Private Sector

Profit is commonly the primary goal Project may be chosen that offers limited profit potential but which: provides organisational stability eg no redundancies offers technological advancement eg new skills enhances firm's public image eg contribution to society creates new markets eg diversification maintains share of a specific market decreases effects of business cycles PS is characterised by: Immediate sensitivity & quicker reaction to operational needs less individual latitude in resource commitment the need for the technical probability of success

PROJECT SELECTION - Private Sector

LIST OF COMMON PS CRITERIA : Alignment with core business Availability of raw materials Top-management support Potential market for output Positive impact on stakeholders Probability of adequate share of potential market Stage of technology development Ability to reach market in timely manner Adequate organisational knowledge of technology Ability to reach market in timely manner Existing facility and equipment Adequate payback period

PROJECT SELECTION - Non-Profit Sector

EG - charities, social groups, professional associations.

PS can either be similar to government or private sector

Some factors in selecting projects : project should comply with the organisation's mission the need of its constituency is a primary factor profit not primary but often must produce revenue selection based on cost/benefit analysis is critical selection is driven by a desire to obtain public goodwill

PROJECT SELECTION - QUESTIONS

2. Should the project manager been involved in the project selection process? Why?

WHO SELECTS PROJECTS ?

PROJECT MANAGERS ROLE
PM usually engaged after PS - only 20% involved
The involvement of the project manager has 2 advantages: automatically be committed to the project understand rationale for selecting the project. If PM not part of the PS process, should be informed of basis for PS to give correct focus for the project management process.

PROJECT SELECTION

QUESTION
3. You have been asked to set up a process for selecting projects. What are the desirable characteristics of any method used for selecting projects?

PS METHODOLOGIES - Characteristics
REALISM - takes account of actual situation. eg., resource limitations

CAPABILITY - can deal with many-sided & diverse considerations

FLEXIBILITY - easily altered to cope with changed circumstances.

EASE OF USE - easy and quick to use and understand.

COST - low cost of use relative to project's costs GOAL-ORIENTATED - must evaluate if project meets organisational objectives

DATA FOR PROJECT SELECTION - Characteristics

Subjective & Objective Data In measurement theory: Subjective & Objectives refers to source Objective = external e.g., government statistics Subjective = internal e.g, past personel exeprince Subjective not necessarily wrong or less worthy Reliable & Unreliable Data Reliable = repetitive measurements give narrow range answers ie data with low variability Valid & Invalid Valid = information means what we believe it to mean eg metre rule actually 99cm long.

DATA FOR PROJECT SELECTION - Characteristics

Quantitative & Qualitative Data Quantitative factors for PS : return on investment, probability of technical success, time, cost Problems: correctness of calculations is limited by validity of inputs values distorted by subjectivity of quantifier lack of precedence as a base for calculations difficult measuring spin-off gains not directly related to project Qualitative Factors for PS: philosophy of management. eg risk taker or avoider spin-off benefits to other functions within the organisation moral considerations effect on organisation's reputation

DATA FOR PROJECT SELECTION - Characteristics Summary

Data may be: subjective or objective, quantitative or qualitative, but must be reliable valid

The PS Process - 3 STAGES

Stage 1 - Screening Once project is broadly defined, possible to evaluate potential Preliminary information set against few important criteria. Projects least acceptable discarded. Objective - eliminate projects not worthy of further evaluation Scoring methodologies typically employed at this stage Stage 2 - Evaluation Projects analysed in detailed, thorough, extensive manner More information on projects is gathered. Projects entering Evaluation phase e.g. 10-15% of R&D projects Financial methodologies are commonly used at this stage. Stage 3 - Portfolio Optimum budget among surviving projects is determined Select portfolio of projects

employees suppliers

Customer s New project proposals

Management Marketing dept.

Screening Model

Backlog of project proposals awaiting action

Evaluation Model Rejected proposals

Ongoing projects Terminated projects Completed projects

Portfolio Analysis Model

PS Methodologies - Two essential types

NON-NUMERIC Do not use numbers. NUMERIC Uses numbers. Qualitative factors can be represented numerically. 2 broad categories: Benefit Measurement Methods These produce quantitative measure of benefits/costs Select project that provide greatest benefit types : eg: scoring, economic Constrained Optimisation Methods Mathematical methods that arrive at optimum portfolio Researchers indicate these have limited use in industry

 1.0. INTRODUCTION 1.1. Project Selection - Importance 1.2. Project Selection - The Need for a Formal Process 1.3. Project Selection - The Project Proposal 1.4. Project Selection - Nonconscious Selection 2.0. PROJECT SELECTION - SELECTION CRITERIA 2.1. Organisational Strategic Objectives 2.2. Types of Organisations Project Selection Criteria 2.2. Project Selection - Environmental Influences 3.0. WHO SELECTS PROJECTS ? 3.1 Project Selection by Management 3.2. Project Manager's Role 4.0. DATA FOR PROJECT SELECTION 4.1. Characteristics of Data 5.0. PROJECT SELECTION METHODOLOGIES 5.1. Characteristics 5.2. The Project Selection Process 5.3. Types of Project Selection Methodologies

PROJECT SELECTION

ONE WAY TO SELECT PROJECTS