Strategic Management and

Project Selection
Group 2
PROJECT SELECTION CRITERIA AND MODELS

Presented by Nguyễn Phúc Duy

PROJECT SELECTION
• Project selection is the process of evaluating
individual projects or groups of projects, and then
choosing to implement some set of them so that
the objectives of the parent organization will be
achieved.
• This same systematic process can be applied to any
area of the organization’s business in which
choices must be made between alternatives.
PROJECT SELECTION

Realism

Easy
Computerization Capability
MODEL
SELECTION
CRITERIA
Cost Flexibility

Ease of
Use
PROJECT SELECTION

There are 3 preparatory steps in

using a model:
Determining the
probable
Weighting them impacts of the
Identifying the
relative to each project on the
firm’s objectives
other firm’s
competitive
abilities
Types of Project
Selection Models
Le Ba Thanh Phu

Non-Numeric and Numeric Project Selection Models

Numeric Project Selection Models (Profit/Profitability)
 Non-Numeric Project
Selection Models
The Sacred Cow The Operating Necessity The Competitive Necessity

immediate result
is threatened by the flood useful & effective
continued until
ended or until the
boss himself
announces the
failure of the idea & the project should be financed.
ends it.
has modern planning
process
 The Product Line
Extension
fortify a weak
is not line
needed

company’s
current fills a gap
product lines

profitability

enhanced the
line in a new
& desirable
direction
Comparative Benefit
Model
computerization
of particular new products
records

cannot be
easily
categorized.
selected by the
senior
management

Benefits to the company

Q-Sort Model
 Numeric Project
Selection Models
(Profit/Profitability)
Payback Period

Average Rate of Return

Discounted Cash Flow

Internal Rate of
Return (IRR)
Profitability
Index
Ot
her
s
 Payback Period

Payback
  Period=The initial¿investment∈the project ¿ the project ¿
The forecastedannual net cashinflows¿

The number of years needed by the project to refund its initial fixed
investment is reflected in the ratio of these quantities. For example
suppose a project costs $200,000 to operate and has annual net cash
inflows of $40,000.

Payback Period = $200,000 / $40,000v = 5 Years

 Average Rate of Return
  The averageannual profits
Average Rate of Return= investment ¿
The initial ¿

The ratio of the average annual profit (either after or before taxes) to the average or initial
investment in the project is referred to as the average rate of return. It is mostly
misunderstood as the reciprocal of payback period. The average rate of return does not
generally equal the reciprocal of the payback period because average annual profits are
generally not equivalent to the net cash inflows. In the above mentioned example,
suppose the average annual profits are $30,000

Average Rate of Return = $30,000 / $200,000 = 0.15

Project portfolio management
Step 1: Clarify Business Objectives

First, Aim the in the Right Direction

Similarly, you must be able to clearly state your organization’s
strategic objectives before starting portfolio management. This is
often the first obstacle people run into when trying to implement
PPfM. If you can’t determine the strategic objectives, stop working
on portfolio management and fix that problem first.
 Step 2: Capture and Research

• Create an inventory of candidate projects for the

portfolio. Include in-progress projects as well as ideas for
new projects. Sources can include customer requests,
initiatives from strategic planning, regulatory
requirements, and good ideas from employees and
project managers.
• Gather data for each candidate project on the inventory.
These include data that will allow you to rate the projects
against the criteria that you have developed. It may also
include early estimates of dependencies and high-level
resource requirements
 Step 3: Select the Best Projects

• Maximize the Portfolio’s Value: determine

which combination of projects creates the
highest total value for the portfolio, given
high-level resource constraints. This is
called portfolio maximization.
 Step 4: Validate and Initiate

• To keep the amount of data manageable, a

portfolio is initially constructed at high level of
abstraction. The resulting portfolio ignores
some important constraints and details about
its projects. 
 Step 5: Manage and Monitor

• Initiate the new projects and programs,

inserting them into the project management
system. Although the project manager is
responsible for day-to-day execution of each
project, the portfolio manager’s job continues.
He or she monitors the execution of the
portfolio and its component projects, ensuring
that it continues to meet its original design
objectives.
PROJECT BIDS AND
REQUESTS FOR
PROPOSALS
 An invitation to bid is a “sealed
bidding method” of soliciting
bids used when there is no
substantial difference between
the products or services that
meet the specifications. The only
real difference between the
submissions is the price.

DEFINITIONS A request for proposals (RFP) is

a “competitive negotiations
method” of soliciting proposals.
This method is used when the
end-product is unique, the
customer knows what they
want, but the methods and
specifications aren’t readily
available. Thus, price isn’t the
only deciding factor. Quality and
experience will be heavily
weighed.
 WHEN TO USE?
INVITATIONS TO BID ARE PARTICULARLY USEFUL FOR
PREDICTABLE PROJECTS – LIKE WHEN THE CONTRACTING
PARTY HAS A CLEAR UNDERSTANDING OF THE
REQUIREMENTS AND PROCESSES NECESSARY TO ACHIEVE THE
END-PRODUCT. THIS METHOD INVOLVES PROVIDING
DETAILED WRITTEN SPECIFICATIONS INCLUDING ALL THE
TERMS AND CONDITIONS FOR THE WORK. AN INVITATION TO
BID WILL TYPICALLY RESULT IN SOME FORM OF A FIXED-PRICE
CONTRACT.
A REQUEST FOR PROPOSALS IS TYPICALLY USED FOR BIG-TICKET,
COMPLEX PROJECTS. TYPICALLY, RFP’S ARE UTILIZED ON PROJECTS
THAT WILL REQUIRE A SUBSTANTIAL AMOUNT OF TECHNICAL
SPECIFICATIONS. THE POINT OF USING THIS IS METHOD IS THAT A
REQUEST FOR PROPOSALS IS “PROCESS-SOURCING” RATHER THAN
“PRICE-SOURCING”. REQUESTS FOR PROPOSALS ALLOW
CONTRACTORS TO PROPOSE DIFFERENT WAYS OF PERFORMING
SPECIFIC ASPECTS OR PROBLEMS OF THE SAME PROJECT. WHEN
USING A REQUEST FOR PROPOSALS, DESIGN-BUILD CONTRACTS
ARE COMMON.
 PROS AND PROS: CONS:
Invitations to bid The drawback of
CONS are a quick and this method is that
OF INVITATION easy process to the company’s
TO BID award a performance and
construction track record are
contract. It not sufficiently
simplifies the taken into account.
bidding procedure
by explicitly
outlining what the
specifications and
desired end-
product will be.
 PROS AND PROS: CONS:
The best reason to The main
CONS use an RFP is that disadvantage to
OF REQUESTS the selection is the use of request
based on the best-
FOR bang-for-the-buck
for proposals is the
PROPOSALS fact that it creates
theory. Performance
an extended,
and expertise are
factors that lead to a formal process.
higher level of
quality, and
negotiation provides
the ability to obtain
the best value.
THANK YOU FOR YOUR
ATTENTIONS