University of Jahangir Nagar

Institute of Business Administration

WMBA Programme, Spring 2019
FIN 512/ QBA 507: Project Management
Lecture Handout-2

Course Instructor:
Shish HaiderChowdhury
shishchowdhury@yahoo.co.uk
Cell: 018 19225594

26 January 2019
 Session 2: Project selection

• Criteria for project selection

• Types of project selection models
• Project Portfolio Management
• In-class exercises: Individual vs. Group Decision

Criteria for project selection

The art and science of selecting projects is one that organizations take extremely seriously. Firms in a
variety ofindustries have developed highly sophisticated methods for project screening and selection to
ensure that theprojects they choose to fund offer the best promise of success. As part of this screening
process, organizationsoften evolve their own particular methods, based on technical concerns, available
data, and corporate culture and preferences. It is important to understand the following project selection
criteria:
1. Customer impact – Will the successful outcome of the project have a material impact on users
(internal or external) perceptions of quality? A voice-of-the-customer (VOC) analysis with actual
customer input would be beneficial in answering this question.
2. Process stability – Is the process in the project relatively stable? If the process is new, has it reached a
stable level of performance? Note that “stable” does not necessarily mean that the process is
performing as desired (i.e. as per customer specifications). Also, is the process likely to undergo major
structural or design changes in the near future?
3. Defect definition – Is the process defect well defined? If the project does not have a specific element
that needs to be fixed, it could become a victim of scope-creep and lose its focus. Avoid making the final
output (the “big Y‘s”) the measure of defect. For example, high costs, poor customer satisfaction rates
or not achieving revenue targets can work as high-level problems to tackle, but are not ideal “defect
metrics.” The defect metrics should be operational in nature.
4. Data/information availability – Is data/information available around the process metrics? If not, is it
attainable?
5. Solution clarity – Is the solution already known?
6. Benefits – An appropriately vetted cost-benefit analysis should demonstrate the value of the project,
ideally using a discounted cash-flow model to calculate the net present value or similar cash-flow
analysis of the project.
7. Impact on service quality – Will the project contribute to enhancing overall service quality along the
delivery value chain?
8. Project sponsorship – The level of project sponsorship is often the difference between project success
and failure. Strong sponsorship at an appropriately high level cannot be underestimated and is a
prerequisite for all Six Sigma projects.
9. Project alignment – Does the project align with corporate strategic objectives? If not, the likelihood of
the project not getting appropriately funded and resourced increases (assuming it even gets the green
light to proceed).
10. Project timeline – Can the project be completed within a reasonably short time period?.
11. Probability of implementation – High cultural or organizational resistance means the probability of
implementation is low. Probability of implementation also will be influenced by other factors, such as
competing initiatives, significant organizational changes or changes in strategic objectives.
12. Investment – Will the costs to implement likely include large cash outlays or capital investment?
13. Team availability – This takes into account the amount of time key team members have to support
this project, especially if they are also responsible for other day-to-day functions.
14. Controllability of inputs – If there is little or no control over the inputs to the process, achieving the
project objectives becomes daunting.

Types of project selection models

Five important issues that managers should consider when evaluatingscreening models:

1. Realism: An effective model must reflect organizational objectives, including a firm’s strategic goals
andmission.Criteria must also be reasonable in light of such constraints on resources as money and
personnel.Finally, the model must take into account both commercial risks and technical risks, including
performance,cost, and time.

2. Capability: A model should be flexible enough to respond to changes in the conditions under
whichprojects are carried out. For example, the model should allow the company to compare different
types ofprojects (long-term versus short-term projects, projects of different technologies or capabilities,
projectswith different commercial objectives). It should be robust enough to accommodate new criteria
andconstraints, suggesting that the screening model must allow the company to use it as widely as
possiblein order to cover the greatest possible range of project types.

3. Flexibility: The model should be easily modified if trial applications require changes. It must, for
example, allow for adjustments due to changes in exchange rates, tax laws, building codes, and soforth.

4. Ease of Use: A model must be simple enough to be used by people in all areas of the
organization,both those in specific project roles and those in related functional positions. Further, the
screeningmodel that is applied, the choices made for project selection, and the reasons for those
choices shouldbe clear and easily understood by organizational members. The model should also be
timely: It shouldgenerate the screening information rapidly, and people should be able to assimilate that
informationwithout any special training or skills.

5. Cost: The screening model should be cost effective. A selection approach that is expensive to use
interms of either time or money is likely to have the worst possible effect: causing organizational
membersto avoid using it because of the excessive cost of employing the screening model. The cost of
obtainingselection information and generating optimal results should be low enough to encourage use
of then models rather than diminish their applicability.
Let’s add a sixth criterion for a successful selection model:

6. Comparability: It must be broad enough to be applied to multiple projects. If a model is too

narrowlyfocused, it may be useless in comparing potential projects or foster biases toward some over
others.A useful model must support general comparisons of project alternatives.

Method One: Checklist Model

The simplest method of project screening and selection is developing a checklist, or a list of criteria that
pertainto our choice of projects, and then applying them to different possible projects. Let’s say, for
example, that in a company, the key selection criteria are cost and speed to market. Because of strategic
competitive model andthe industry favor low-cost projects that can be brought to the marketplace
within one year.In deciding among several new product development opportunities, a firm must weigh a
variety of issues,including the following:

• Cost of development: What is a reasonable cost estimate?

• Potential return on investment: What kind of return can we expect? What is the likely payback
period?
• Riskiness of the new venture: Does the project entail the need to create new-generation
technology?How risky is the venture in terms of achieving our anticipated specifications?
• Stability of the development process: Are both the parent organization and the project team
stable?
 Can we expect this project to face funding cuts or the loss of key personnel, including senior
managementsponsors?
• Governmental or stakeholder interference: Is the project subject to levels of governmental
oversightthat could potentially interfere with its development?
• Product durability and future market potential: Is this project a one-shot opportunity, or could
it be theforerunner of future opportunities?
Project Selection Model: Financial Models

Net Present Value (NPV): NPV should be calculated for every project so that all proposed projects in the
project portfolio management system can be compared. When using NPV as one of the project selection
criteria, generally only projects with positive NPV are considered for funding with the higher NPV being
favored over the lower. When a project has a zero NPV other factors such as intangibles within the
business case might warrant the project being funded. Projects with negative NPV are usually not
funded.

Internal Return (IRR): IRR should also be calculated for every project and used in a project ranking of the
entire project portfolio management system. Projects with higher IRR should be favored over projects
with lower IRR. However, every organization should have a minimum IRR required as part of their
project selection criteria so that projects with an IRR below the minimum return rate would not be
funded unless there are other factors in the business case.

Project Risk: Project risk must be assessed and evaluated as part of the project selection criteria which
establishes the balance of risks vs. rewards in the business case. Often the use of a project risk rating
comes in the form of a weighting factor rather than a direct project ranking criteria to be used in project
selection. Instead, the project risk rating might drive project risk mitigation requirements depending on
the assigned risk rating. This is critical since things like delays in project execution can affect cash flows
thereby worsening or possibly negating projected NPV and IRR.

Rest in the PDF file

Project Planning

The key to a successful project is in the planning. Creating a project plan is the first thing one should do
when undertaking any project. Project planning is a discipline for stating how to complete a project
within a certain timeframe, usually with defined stages, and with designated resources. 

Step 1: Explain the project plan to key stakeholders and discuss its key components.
One of the most misunderstood terms in project management, the project plan is a set of living
documents that can be expected to change over the life of the project. Like a roadmap, it provides the
direction for the project. And like the traveler, the project manager needs to set the course for the
project, which in project management terms means creating the project plan. Just as a driver may
encounter road construction or new routes to the final destination, the project manager may need to
correct the project course as well.

Step 2: Define roles and responsibilities. Not all key stakeholders will review all documents, so it is
necessary to determine who on the project needs to approve which parts of the plan. Some of the key
players are:

 Project sponsor, who owns and funds the entire project. Sponsors need to review and approve all
aspects of the plan.
 Designated business experts, who will define their requirements for the end product. They need to
help develop the scope baseline and approve the documents relating to scope. They will be quite
interested in the timeline as well.
 Project manager, who creates, executes, and controls the project plan. Since project managers
build the plan, they do not need to approve it.
 Project team, who build the end product. The team needs to participate in the development of
many aspects of the plan, such as identifying risks, quality, and design issues, but the team does
not usually approve it.
 End users, who use the end product. They too, need to participate in the development of the plan,
and review the plan, but rarely do they actually need to sign off.
 Others, such as auditors, quality and risk analysts, procurement specialists, and so on may also
participate on the project. They may need to approve the parts that pertain to them, such as the
Quality or Procurement plan.

Step 3: Hold a kickoff meeting. The kickoff meeting is an effective way to bring stakeholders together to
discuss the project. It is an effective way to initiate the planning process. It can be used to start building
trust among the team members and ensure that everyone's ideas are taken into account. Kickoff
meetings also demonstrate commitment from the sponsor for the project. Here are some of the topics
that might be included in a kickoff meeting:

 Business vision and strategy (from sponsor)

 Project vision (from sponsor)
 Roles and responsibilities
 Team building
 Team commitments
 How team makes decisions
 Ground rules
 How large the group should be and whether sub-groups are necessary

Step 4: Develop a Scope Statement. The Scope Statement is arguably the most important document in
the project plan. It's the foundation for the rest of the project. It describes the project and is used to get
common agreement among the stakeholders about the scope. The Scope Statement clearly describes
what the outcome of the project will be. It is the basis for getting the buy-in and agreement from the
sponsor and other stakeholders and decreases the chances of miscommunication. This document will
most likely grow and change with the life of the project. The Scope Statement should include:

 Business need and business problem

 Project objectives, stating what will occur within the project to solve the business problem
 Benefits of completing the project, as well as the project justification
 Project scope, stated as which deliverables will be included and excluded from the project.
 Key milestones, the approach, and other components as dictated by the size and nature of the
project.

It can be treated like a contract between the project manager and sponsor, one that can only be
changed with sponsor approval.

Step 5: Develop scope baseline. Once the deliverables are confirmed in the Scope Statement, they need
to be developed into a work breakdown structure (WBS), which is a decomposition of all the
deliverables in the project. This deliverable WBS forms the scope baseline and has these elements:

 Identifies all the deliverables produced on the project, and therefore, identifies all the work to be
done.
 Takes large deliverables and breaks them into a hierarchy of smaller deliverables. That is, each
deliverable starts at a high level and is broken into subsequently lower and lower levels of detail.
 The lowest level is called a "work package" and can be numbered to correspond to activities and
tasks.

The WBS is often thought of as a task breakdown, but activities and tasks are a separate breakdown,
identified in the next step.
Step 6: Develop the schedule and cost baselines. Here are the steps involved in developing the
schedule and cost baselines.

 Identify activities and tasks needed to produce each of the work packages, creating a WBS of tasks.
 Identify resources for each task, if known.
 Estimate how long it will take to complete each task.
 Estimate cost of each task, using an average hourly rate for each resource.
 Consider resource constraints, or how much time each resource can realistically devoted to this
project.
 Determine which tasks are dependent on other tasks, and develop critical path.
 Develop schedule, which is a calendarization of all the tasks and estimates. It shows by chosen time
period (week, month, quarter, or year) which resource is doing which tasks, how much time they are
expected to spend on each task, and when each task is scheduled to begin and end.
 Develop the cost baseline, which is a time-phased budget, or cost by time period.

This process is not a one-time effort. Throughout the project you will most likely be adding to repeating
some or all of these steps.

Step 7: Create baseline management plans. Once the scope, schedule, and cost baselines have been
established, you can create the steps the team will take to manage variances to these plans. All these
management plans usually include a review and approval process for modifying the baselines. Different
approval levels are usually needed for different types of changes. In addition, not all new requests will
result in changes to the scope, schedule, or budget, but a process is needed to study all new requests to
determine their impact to the project.

Step 8: Develop the staffing plan. The staffing plan is a chart that shows the time periods, usually
month, quarter, year, that each resource will come onto and leave the project. It is similar to other
project management charts, like a Gantt chart, but does not show tasks, estimates, begin and end dates,
or the critical path. It shows only the time period and resource and the length of time that resource is
expected to remain on the project.

Step 9: Analyze project quality and risks.

Project Quality: Project quality consists of ensuring that the end product not only meets the customer
specifications, but is one that the sponsor and key business experts actually want to use. The emphasis
on project quality is on preventing errors, rather than inspecting the product at the end of the project
and then eliminating errors. Project quality also recognizes that quality is a management responsibility
and needs to be performed throughout the project.

Creating the Quality Plan involves setting the standards, acceptance criteria, and metrics that will be
used throughout the project. The plan, then, becomes the foundation for all the quality reviews and
inspections performed during the project and is used throughout project execution.

Project Risks: A risk is an event that may or may not happen, but could have a significant effect on the
outcome of a project, if it were to occur. For example, there may be a 50% chance of a significant
change in sponsorship in the next few months. Analyzing risks includes making a determination of both
the probability that a specific event may occur and if it does, assessing its impact. The quantification of
both the probability and impact will lead to determining which are the highest risks that need attention.
Risk management includes not just assessing the risk, but developing risk management plans to
understand and communicate how the team will respond to the high-risk events.

Step 10: Communicate! One important aspect of the project plan is the Communications Plan. This
document states such things as:

 Who on the project wants which reports, how often, in what format, and using what media.
 How issues will be escalated and when.
 Where project information will be stored and who can access it.

For complex projects, a formal communications matrix is a tool that can help determine some of the
above criteria. It helps document the project team's agreed-on method for communicating various
aspects of the project, such as routine status, problem resolution, decisions, etc.