the manner in which projects are added to the company’s portfolio. The primary mechanism for new project selec- tion focused almost exclusively on discounted cash flow ‘models, such as net present value analysis. Essentially, if it promised profitable revenue streams, @ project was okayed by top management. ‘One result of this practice was the development of a “family” of projects that were often almost com- pletely unrelated. No one, it seems, ever asked whether projects that were added to the portfolio fit with other ongoing projects. Keflavik attempted to ‘expand into coated papers, photographie products, shipping and packaging materials, and other lines that strayed far from their original niche. New proj- ects were rarely measured against the firm's strategic mission, and little effort was made to evaluate them according to its technical resources. Some new proj- ects, for example, failed to fit because they required significant organizational learning and new technical expertise and training (all of which was also expensive and time consuming). The result was a portfolio of diverse, mismatched projects that was difficult to man- age. Further, it decreased organizational learning as the diverse nature of the new product line and devel ‘opment processes made it impossible for Keflavik's project managers to move easily from one assignment to the next, Likewise, this hodgepodge of projects made it difficult to apply lessons learned from one project to the next, Because the skills acquired on one project were largely non-transferable, project teams routinely had to relearn processes whenever they moved on to a new project. The consultant suggested that Keflavik rethink its, project selection and screening processes. In order to lend some coherence to its portfolio, the firm needed Phyllis Henry, vice president of new product develop- ‘ment, sat at her desk, trying to make sense of the latest new project proposals she had just received from her staff. Nova Western, Inc., a large developer of ‘business software and application programs, had been experiencing a downturn in operating revenues over the past three quarters. The senior management team ‘was feeling pressure from the board of directors to take steps to correct this downward drift in revenues and profitability, Their consensus opinion was that 112 Guvren ase 4 idy 3.2. Project Selection at Nova Western, Inc. Project Selection and Portfolio Management to include alternative screening mechanisms. All projects, for instance, had to be evaluated in terms: the company’s strategic goals and were required demonstrate complementarity with its current lio, He further recommended that in order to ma project managers with the types of projects that company was increasingly undertaking, it should. lyze their current skill sets. Although Keflavik hegun implementing these and other recomm: tions, progress so far has been slow. In particulay, ‘managers have found it hard to reject opportuni that offer positive cash flow, They have/also had relearn the importance of project. prioritizati ‘Nevertheless, a new prioritization scheme is in pl ‘and it seems to be improving both the selection of project opportunities and the company’s ability to age projects once they are funded. QUESTIONS FOR DISCUSSION 1, Keflavik Paper presents a good example of dangers of excessive reliance on one screenit technique (discounted cash flows). How mig! ‘excessive or exclusive reliance on other scree! methods discussed in this chapter lead to similar problems? Assume that you are responsible for maintai Keflavik’s project portfolio. Name some key crit that you believe should be used in evaluating all new projects before they are added to the curr portfolio. 3. What does this case demonstrate about the effect poor project-sereening methods on a firm's abil to manage its projects effectively? Nova Western needed some new product ideas, and fast. The report Phyllis was reading contained the results of @ project screening conducted by two independent groups within the new product devel: ‘opment department. After several weeks of analysis, it appeared that two top contenders had emerged as the optimal new project opportunities, One project, code-named Janus, was championed by the head of software development. The other project idea,