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,