MANAJEMEN PROYEK

Week-2

“Organization Strategy & Project Selection”

PSMI Laboratory  2022

Industrial Engineering Department - ITS
 What is Project Selection

• The go/no-go project decisions decided

during a Project Selection and Approval

• This phase shapes the overall direction of the

business unit from the project’s perspective.

• It is during this phase that the organization’s

project management processes are initiated.
 To Enable the Organization to choose the right projects

Projects that will lead to success.

Projects that have a positive benefit cost ratio.

project selection?
Why do we need

Provide the organization a prioritized list of projects

The organization has many stakeholders

Project choices are numerous

Improve the chance of success

Align with organization strategy

Stakeholder involvement
“ Strategy is implemented through
projects. Every project should
have a clear link to the
organization’s strategy.

”
Larson, 2014
Why Project Managers Need to Understand Strategy

They can make appropriate decisions

and adjustments

They can be effective project advocates

WHY?  Project managers have to be able to
demonstrate to senior management
how their project contributes to their
firm’s mission
 Project managers also need to be
able to explain to team members and
other stakeholders why certain
project objectives and priorities are
critical
Four Activities of Strategic Management Process

01 02
Review and define Set long-range goals
organizational and objectives
mission

03 04
Analyze and Implement strategies
formulate strategies through project
to reach objectives
 Strategic
Management
Process
The Vision
 A Vision is an OBJECTIVE IMAGE shared by the founder
and stakeholders that represents collective guidelines for
meeting the aspirations
 It replies to the initial question: “Where do we want to
go?”
 It reflects a desire to act in order to change the course of
events and to solve concrete problems
 It projects the objectives into 5 to 10 years ahead

13
Is explicitly shows in the vision
statement…..
◼ Vision statement answers the question:
“What do we want to become?”

◼ A general statement of its intended direction

that evokes emotional feelings in organization
members.
Characteristics of a Mission Statement
 Defines current business activities
 Highlights boundaries of current business
 Conveys
 Who we are,

 What we do, and

 Where we are now

 Company specific, not generic —

so as to give a company its own identity
A company’s mission is not to make a profit !
The real mission OF A PROFIT ORGANISATION is always—“What will we do to
make a SUSTAINABLE profit?”
 Develop a Strategic Vision and Mission
First Task of Strategic Management

• A mission statement • A strategic vision

focuses on current
business activities --
“who we are and
what we do”
– Current product and
service offerings
– Customer needs being
served
– Technological and
business capabilities
concerns a firm’s
future business path --
“where we are
going”
– Markets to be pursued
– Future technology-product-
customer focus
– Kind of company that
management is
trying to create
Since the beginning, our goal has been to develop services that
significantly improve the lives of as many people as possible.
Not just for some. For everyone.
12
 Objective – translate MS into concrete terms (SMART)
Good Project – Think SMART
S Specific Be specific in targeting an objective
M Measurable Establish a measurable indicator(s) of progress

A Assignable Make the objective assignable to one person

for completion
R Realistic State what can realistically be done with
available resources
T Time related

Organizational objectives drive your projects.

YOU NEED TO KNOW: WHAT YOU’RE GOING TO DO AND WHY EXHIBIT 2.1
 Strategies
• Strategies – answer questions « how are we going to get
there » or what needs to be done to reach our objectives
• Components are:
1. Understand past & current position of the organization-
customer needs,
2. Assemment of the internal environment (resources), and external
environment (competitors, regulations, etc.) SWOT analysis,
identify core competencies
3. Portfolio of strategic alternatives are identified. Should support
mission and objectives.
4. Implement strategies through projects.
Analyze and Formulate Strategies to reach Objectives
1ST STEP: Realistic evaluation of the past and current position of the enterprise. This step
typically includes an analysis of “who are the customers” and “what are their needs as they
(the customers) see them.”

Internal - STRENGTHS
Example: Technology, product
S W Internal - WEAKNESSES
Example: Technology, product
quality, management talent quality, management talent

SWOT
ANALYSIS
External - OPPORTUNITIES External - THREATS
Example: Technology, Social, Example: Technology, Social,
Legal, Environment, etc. Legal, Environment, etc.

O T
 3. Portfolio Management
Applying a Selection Model

• Project Classification
• Deciding how well a strategic or operations project fits the
organization’s strategy.
• Selecting a Model
• Applying a weighted scoring model to bring projects to closer with the
organization’s strategic goals.
• Reduces the number of wasteful projects
• Helps identify proper goals for projects
• Helps everyone involved understand how and why a project is selected

EXHIBIT 2.2
Portfolio of Projects by Type

• Compliance projects are typically those needed to meet regulatory conditions required to
operate in a region, usually includes penalty.
ex: Emergency projects, such as rebuilding a soybean factory destroyed by fire, meet the must do
criterion.
• Operational projects are those that are needed to support current operations.
Ex: improve efficiency of delivery systems, reduce product costs, and improve performance.
• Strategic projects are those that directly support the organization’s long-run mission.
Ex: directed toward increasing revenue or market share suc has new products, research, and
development.
A Portfolio Management System

• Selection Criteria
• Financial: payback, net present value (NPV), internal rate of return
(IRR)
• Non-financial: projects of strategic importance to the firm.
• Multi-Weighted Scoring Models
• Use several weighted selection criteria to evaluate project
proposals.
Opportunity Assessment
Approaches to Project Selection

01 02

Financial Criteria Non-Financial Criteria

NPV Checklist Model

Multi-weighted Scoring
IRR
Model

Payback Period
 A. CHECKLIST MODEL

A checklist is a list of criteria applied to possible

projects.
 Requires agreement on criteria
 Assumes all criteria are equally important

Checklists are valuable for recording opinions and

encouraging discussion
Checklist Model
Performance on Criteria
High Medium Low
Project Criteria

Project Alpha Cost X

Profit Potential X
Time to Market X
Development Risks X

Project Beta Cost X

Profit Potential X
Time to Market X
Development Risks X

Project Gamma Cost X

Profit Potential X
Time to Market X
Development Risks X

Project Delta Cost X

Profit Potential X
Time to Market X
Development Risks X
Checklist Model
B. SIMPLE SCORING MODEL

Each project receives a score that is the weighted sum of its

grade on a list of criteria. Scoring models require:
 agreement on criteria
 agreement on weights for criteria
 a score assigned for each criteria
Score   (Weight  Score)

Relative scores can be misleading!

Simple Scoring Model (1)
(A) (B) (A) x (B)
Importance Weighted
Project Criteria Weight Score Score

Project Alpha
Cost 1 3 3

Profit Potential 2 1 2

Development Risk 2 1 2

Time to Market 3 2 6

Total Score 13

Project Beta
Cost 1 2 2

Profit Potential 2 2 4

Development Risk 2 2 4

Time to Market 3 3 9

Total Score 19
Multi-Weighted Scoring Model (2)
C. ANALYTIC HIERARCHY PROCESS
The AHP is a four step process:
1. Construct a hierarchy of criteria and sub criteria
2. Allocate weights to criteria
 Weights sum to 1 (normalized)
3. Assign numerical values to evaluation dimensions
4. Scores determined by summing the products of numeric
evaluations and weights

Unlike the simple scoring model, these scores are

comparable!
Analytic Hierarchy Process (AHP) : Step 1 & 2
Analytic Hierarchy Process (AHP) : Step 3 & 4
E. FINANCIAL MODELS
Based on the time value of money principal

1. Payback period
2. Net present value
3. Internal rate of return

All of these models use discounted cash flows

1. Payback Period
Determines how long it takes for a project to reach a breakeven
point
Investment
Payback Period 
Annual Cash Savings
Cash flows should be discounted
Lower numbers are better (faster payback)
• Measures the time it will take to recover the project investment.
• Shorter paybacks are more desirable.
• Emphasizes cash flows, a key factor in business.
• Limitations of payback:
 Ignores the time value of money.
 Assumes cash inflows for the investment period (and not beyond).
 Does not consider profitability.
Payback Period Example

A project requires an initial investment of $200,000 and will generate cash

savings of $75,000 each year for the next five years. What is the payback
period?

Year Cash Flow Cumulative Divide the cumulative amount by

0 ($200,000) ($200,000) the cash flow amount in the third
year and subtract from 3 to find
1 $75,000 ($125,000) out the moment the project
2 $75,000 ($50,000) breaks even.
3 $75,000 $25,000

25, 000
3  2.67 years
75, 000
 2. Net Present Value
• Projects the change in the firm’s stock value if a project is undertaken.
• Uses management’s minimum desired rate-of-return (discount rate) to
compute the present value of all net cash inflows.
 Positive NPV: the project meets the minimum desired rate of return and is
eligible for further consideration.
 Negative NPV: project is rejected.

Higher NPV values are better!

Net Present Value Example (1)
Should you invest $60,000 in a project that will return $15,000 per year for five
years? You have a minimum return of 8% and expect inflation to hold steady at
3% over the next five years.

Discounted
Year Net flow Discount
Flow
0 -$60,000 1.0000 -$60,000.00
1 $15,000 0.9009 $13,513.51
The NPV
2 $15,000 0.8116 $12,174.34
column total is
3 $15,000 0.7312 $10,967.87 -$4561, so
4 $15,000 0.6587 $9,880.96 don’t invest!

5 $15,000 0.5935 $8,901.77

-$4,561.54
Net Present Value Example (2)
1. Compute net present value (NPV) of this investment project.
2. Should the equipment be purchased according to NPV analysis?
Project:

(1) Computation
net present value:

(2) Decision:
• Yes, the equipment should be purchased because the net present value is positive ($1,317).
Having a positive net present value means the project promises a rate of return that is higher
than the minimum rate of return required by management (20% in the above example).
• In the above example, the minimum required rate of return is 20%. The minimum required
rate of return (20% in our example) is used to discount the cash inflow to its present value and
is, therefore, aka as discount rate.
3. Internal Rate of Return
A project must meet a minimum rate of return before it is
worthy of consideration.

t
ACFt
IO   Higher IRR
n 1 (1  IRR )t values are
where better!
ACFt = annual after tax cash flow for time period t
IO = initial cash outlay
n = project's expected life
IRR = the project's internal rate of return
Internal Rate of Return Example

A project that costs $40,000 will generate cash flows of $14,000 for the
next four years. You have a rate of return requirement of 17%; does this
project meet the threshold?

Year Net flow Discount NPV

0 -$40,000 1.0000 -$40,000.00This table has been
1 $14,000 0.8696 $12,173.91 calculated using a
2 $14,000 0.756144 $10,586.01 discount rate of
3 $14,000 0.667516 $9,205.23 15%
4 $14,000 0.571753 $8,004.55
-$30.30

The project doesn’t meet our 17% requirement and should not be
considered further.
Net Present Value (NPV) and Internal Rate of Return (IRR): Example Comparing Two
Projects

EXHIBIT 2.3
Project Proposal
Concern:
• Which projects should be bid on?
• How should the proposal-preparation process be organized and staffed?
• How much should be spent on preparing proposals for bids?
• How should the bid prices be set?
• What is the bidding strategy? Is it ethical?

• Sources and Solicitation of Project Proposals

• Within the organization
• Request for proposal (RFP) from external sources (contractors and vendors)
• Ranking Proposals and Selection of Projects
• Prioritizing requires discipline, accountability, responsibility, constraints,
reduced flexibility, and loss of power.
• Managing the Portfolio
• Senior management input
• The priority team (project office) responsibilities
Project Proposal:
1. Cover Letter & Executive Summary
• Compose a cover letter as key marketing instrument
• Explain fundamental nature and general benefits of project
• Minimally technical language

2. Past Experience of Project Team

• List all key project personnel with titles and qualifications
• Include full resume of each principal
• Provide all pertinent references

3. Technical Approach
• General description of problem to be addressed or project to be
undertaken
• Major subsystems of problem or project
• Methodology of solving the problem
• Special client requirements
• Test and inspection procedures
 Project Proposal: (cont’d)
4. Implementation Plan
• Estimates of time, cost and materials for each subsystem and the whole
project
• Establish major milestones to break project into phases
• List equipment, overhead and administrative cost
• Develop contingency plans (including slack time)

5. Plan for Administration and Logistic Support

• Control over subcontractors
• Nature and Timing of all reports (progress, budget, audits)
• Change management
• Termination Procedures
• “Touch of class” capabilities (artist’s renderings, meeting facilities, video
conferencing, computer graphics)
Major Project
Proposal

FIGURE 2.4A
 Risk
Analysis

FIGURE 2.4B
 Project
Proposal
Example

49
Project Screening
Process

FIGURE 2.5
Priority
Analysis

FIGURE 2.6
Project Portfolio Matrix

•Bread-and-butter projects
Involve evolutionary improvements to
current products and services.
ex: include software upgrades and
manufacturing cost reduction effort

•Pearls
Represent revolutionary commercial
advances using proven technical
advances.
ex: include next-generation integrated
circuit chip and subsurface imaging to
locate oil and gas.

FIGURE 2.7
Project Portfolio Matrix

•Oysters
Involve technological breakthroughs
with high commercial payoffs.
ex: include embryonic DNA treatments
and new kinds of metal alloys.

•White elephants
Projects that at one time showed
promise but are no longer viable.
ex: include products for a saturated
market or a potent energy source with
toxic side effects.

FIGURE 2.7
 Tips for Project Selection
• Two Critical Facts:
• Models do not make decisions - People do!
• All models, however sophisticated, are only partial
representations of the reality the are meant to reflect

• There are many techniques for project selection

• Not ONE right way
Selection/Priorities Issues
One technique that is useful for this purpose is completing priority
matrix for the project that identifies which criterion is constrained,
which should be enhanced, and which can be accepted

Constrain : which criterion should be fixed, should meet the original parameter.
Enhance : which criterion should be optimized.
Accept : which criterion is tolerable not to meet the original parameter.
Selection/Priorities Issues
Construct the priority matrix to make alignment between the
project management trade-off (scope, time, cost) and the status
of criteria (constrain, enhance, accept)
Gambar 2. Matriks Prioritas Proyek

scope

Quality

cost time
Gambar 1. Timbal Balik Manajemen Proyek
Selection/Priorities Issues
Example:
• display the priority matrix for the development of new high-speed
modem. Because time to market is important to sales, the project
Gambar 2. Matriks Prioritas Proyek
manager is instructed to take advantage of every opportunity to reduce
completion time.
• In doing so, going over budget is possible though not desirable.
• At the same time, the original performance specifications for the modem
as well as reliability standards can not be compromised.
Selection/Priorities Issues

time performance cost

constrain

enhance

accept

Matriks Prioritas Proyek