Module 2: Project Selection

IT Project Management
School of Computing, Faculty of Engineering
Universiti Teknologi Malaysia

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

 Strategic Planning and Project
Selection
• Strategic planning involves determining long-term
objectives, predicting future trends, and projecting the need
for new products and services
• Organizations often perform a SWOT analysis
– Analyzing Strengths, Weaknesses, Opportunities, and
Threats
• As part of strategic planning, organizations:
– Identify potential projects
– Use realistic methods to select which projects to work on
– Formalize project initiation by issuing a project charter
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Mind map of a SWOT analysis in the film industry

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 Information Technology Planning
Process

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Methods for Selecting Projects
(Please note: The Methods are not
only meant for this ITPM Class)

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 Methods for Selecting Projects
• There are usually more projects than available time and
resources to implement them
• Methods for selecting projects include:
 Focusing on broad organizational needs
 Categorizing information technology projects
 Performing net present value or other financial analyses
 Using a weighted scoring model
 Implementing a balanced scorecard

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Focusing on Broad Organizational Needs

• It is often difficult to provide strong justification for

many IT projects, but everyone agrees they have a high
value.
• Three important criteria for projects based on broad
organizational needs :
- There is a need for the project
- There are funds available
- There’s a strong will to make the project succeed

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 Categorizing IT Projects
One categorization is whether the project addresses:
 A problem
 An opportunity
 A directive
• Another categorization is how long it will take to
do and when it is needed
• Another is the overall priority of the project.

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 Financial Analysis of Projects
• Financial considerations are often an important
consideration in selecting projects
• Three primary methods for determining the projected
financial value of projects
 Net present value (NPV) analysis
 Return on investment (ROI)
 Payback analysis

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 Net Present Value Analysis
• A dollar earned today is worth more than a dollar
earned five years from now.
• Net present value (NPV) analysis is a method of
calculating the expected net monetary gain or loss
from a project by discounting all expected future
cash inflows and outflows to the present point in
time.
• Projects with a positive NPV should be considered if
financial value is a key criterion
• The higher the NPV, the better
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 NPV Calculations
• Determine the estimated costs and benefits for the life
of the project and the products it creates.
• Determine the discount rate (check with your
organization on what to use)
• Calculate the NPV
 Microsoft Excel: =npv(discount rate, range of cash flows)

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 Net Present Value Example

Note that
totals are
equal, but
NPVs are
not
because
of the time
value of
money

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 JWD Consulting NPV Example

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 Return on Investment
• Return on investment (ROI) is a financial metric that is used to
measure the probability of gaining a return from an
investment.
• ROI is calculated by subtracting the project costs from the
benefits and then dividing by the costs
ROI = (total discounted benefits - total discounted costs) /
discounted costs
• The higher the ROI, the better
• Many organizations have a required rate of return or minimum
acceptable rate of return on investment for projects

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 Payback Analysis
• Another important financial consideration is payback
analysis
• The payback period is the amount of time it will take to
recoup, in the form of net cash inflows, the total dollars
invested in a project
• Payback occurs when the net cumulative discounted
benefits equals the costs
• Many organizations want IT projects to have a fairly short
payback period

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 Charting the Payback Period

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 Weighted Scoring Model
• A weighted scoring model is a tool that provides a
systematic process for selecting projects based on
many criteria
1. Identify criteria that are important to the project
selection process.
2. Assign weights (percentages) to each criterion so
they add up to 100%
3. Assign scores to each criterion for each project
4. Multiply the scores by the weights and get the total
weighted scores
• The higher the weighted score, the better
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 Sample Weighted Scoring Model for
Project Selection

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 Implementing a Balanced Scorecard
• Drs. Robert Kaplan and David Norton developed this
approach to help select and manage projects that align
with business strategy
• A balanced scorecard:
• Is a methodology that converts an organization’s
value drivers, such as customer service, innovation,
operational efficiency, and financial performance, to
a series of defined metrics.
• See www.balancedscorecard.org for more information

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 Balanced Scorecard Example

Defense Finance and Accounting Service, “DFAS Strategic Plan,” Nov 2001
(http://balancedscorecard.org/files/DFAS-strategic-plan.pdf ), p. 13.

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 Destination Diagram/ Dream Boarding
• A destination diagram often used to visualize
elements that should appear at the end of a project

• Often utilized as vision building exercise (for project

or non project-life)

• This is a richer aspect of presenting the elements

other than Check List

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 My Life Dream
20 years from today (16 Feb 2011)

Mr X
Darul Iman – Modernize ‘sekolah pondok’ for adults
Picture Location: Bandar Tasik Puteri, Rawang, Selangor
Cost: RM60,000.00 / year
Income: RM120,000.00 / year

Performing 3rd Hajj

Location: Makkah
Cost:
RM100,000.00 Renowed Academician & Researcher
Location: Universiti Selangor (UNISEL)
Income: RM 174,000.00 / year

Raised my 1 year old son

Cost: RM 3 million

Umrah & Tour

Location: Jordan - Restoren Bawang
Turki – Egypt - Location: Bandar Tasik Puteri,
Madinah - Makkah Rawang, Selangor
Bungalow with swimming pool Audi 4WD Cost: RM80,000.00 / year
Cost: RM100,000.00
Location: Kuala Lumpur outskirt Cost: RM450,000.00 Income: RM240,000.00 / year
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 $ 20,000,000

Forth 5 years $30,000

$ 200,000

$ 30,000,000+600,000
$500,000

$100,000
Third 5 years
From the second 5 years
$ 80,000 until year 20th $ 450,000

+ $ 4,000,000+600,000

Post- DR with
grant
Second 5 US
years
From the second 5 years
until years 20th $ 1,500,000
California
$ 500,000+600,000
$ 40,000
PHD

My Life Dreams Canada

$ 50,000+ grant
First 5 years
$ 10,000

$ 70,000+50,000 $ 10,000
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 The Business Model Canvas (BMC)
• The Business Model Canvas (BMC) is a strategic
management tool for quickly and easily define and
communicate a business idea or concept.
• It is a visual chart with key elements describing a firm's
or product's value proposition, infrastructure,
customers, and finances.
• The BMC is a single page with nine connected boxes,
which show how all parts of your business work together
for success.

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 The Business Model Canvas (BMC)

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 Project Charters

• After deciding what project to work on, it is important

to let the rest of the organization know.
• A project charter is a document that formally
recognizes the existence of a project and provides
direction on the project’s objectives and management.
• Key project stakeholders should sign a project charter
to acknowledge agreement on the need and intent of
the project; a signed charter is a key output of project
integration management

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Sample Project
Charter

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 Preliminary Scope Statements
• A scope statement is a document used to develop and
confirm a common understanding of the project scope
• Scope statement is important for preventing scope
creep.
 The tendency for project scope to keep getting
bigger
• It’s good practice to develop a preliminary or initial
scope statement during project initiation and a more
detailed scope statement as the project progresses

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 Stakeholder Analysis
• The internal people and teams who involved in the
project are called stakeholders.
• Stakeholder analysis documents are important (often
sensitive) information about stakeholders such as:
 Stakeholders’ names and organizations
 Roles on the project
 Unique facts about stakeholders
 Level of influence and interest in the project
 Suggestions for managing relationships
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Sample
Stakeholder
Analysis

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 Summary

• Project Selection Methods

• Developing a project charter
• Developing a preliminary project scope statement
• Developing Stakeholder Analysis

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