CHAPTER 2

Organization Strategy and project

selection
DIMA MOSTAFA HAJAIA
5190002
Outline
The Strategic Management Process: An Overview
Scenario Planning: A Supplement to Traditional Strategic Planning
The Need for an Effective Project Portfolio Management System
A Portfolio Management System
Applying a Selection Model
Managing the Portfolio System
Where we are now
Why Project Managers Need
to Understand Strategy
There are two main reasons why project managers need to understand their organization’s
mission and strategy:
The first reason is so they can make appropriate decisions and adjustments.

For example, how a project manager would respond to a suggestion to modify the design of a
product to enhance performance will vary depending upon whether his company strives to be a
product leader through innovation or to achieve operational excellence through low cost solutions.

Similarly, how a project manager would respond to delays may vary depending upon strategic
concerns. A project manager will authorize overtime if her firm places a premium on getting to the
market first.
Why Project Managers Need
to Understand Strategy
There are two main reasons why project managers need to understand their
organization’s mission and strategy:
The second reason project managers need to understand their organization’s strategy is so they
can be effective project advocates.

Project managers have to be able to demonstrate to senior management how their project
contributes to their firm’s mission.
Why Project Managers Need
to Understand Strategy
Mistakes caused by not understanding the role of projects in accomplishing
strategy:
Focusing on problems or solutions with low strategic priority.

Focusing on the immediate customer rather than the whole market place
and value chain.
Why Project Managers Need
to Understand Strategy
Overemphasizing technology that results in projects that pursue exotic
technology that does not fit the strategy or customer need

Trying to solve customer issues with a product or service rather than

focusing on the 20% with 80% of the value (Pareto’s Law).

Engaging in a never-ending search for perfection only the project team

really cares about.
 2.1 The Strategic Management Process: An
Overview
Strategic management is the process of assessing “what we are” and
deciding and implementing “what we intend to be and how we are
going to get there.”

Strategy describes how an organization intends to compete with the

resources available in the existing and perceived future environment.
2.1 The Strategic Management Process: An
Overview
Strategic management Has two main dimensions :
Responding to changes in the external environment—environmental scanning
Allocating scarce resources of the firm to improve its competitive position internal
responses to new programs
Strategic Management
Provides theme and focus of firm’s future direction.
Supports consistency of action at every level of the organization.
Encourages integration because effort and resources are committed to common goals and
strategies.
Continuous, iterative process aimed at developing an integrated and coordinated long-term
plan of action.
Positions the organization to meet the needs and requirements of its customers for the long
term.
Strategy can decide the survival of an organization.
2.1 The Strategic Management Process: An
Overview
 The Figure shows a schematic
of the strategic management
process and major activities
required.

FIGURE 2.1

Strategic Management Process 2–10

Four Activities of the Strategic
Management Process
The typical sequence of activities of the
strategic management process is:
1. Review and define the organizational mission.

2. Set long-range goals and objectives.

3. Analyze and formulate strategies to reach

objectives.

4. Implement strategies through projects

2–11
 1. Review and define the organizational mission/example
Mission

 Area management and sustainable development according to international standards of

infrastructure and services so that they are supportive of the investments and keep abreast of
developments.

 Creating partnerships according to the principles of fair trade and the benefits of preferential
stimulating.
 1. Review and define the organizational mission/example
Trends

 Expansion in the establishment of development zones

 Open areas of investment and a variety of somewhat larger
 Diversify and increase sources on income
 Restructuring the assets and liabilities.

Strategic goals

 Raise the efficiency of the infrastructure and service

 Increase the proportion of investment growth and indigenization
 Develop institutional capacity
 1. Review and define the organizational mission

The Organizational Mission Identifies:

 the kind of business the company wants to be in “what we want to become” or the raison
d’être.
 identify the scope of the organization in terms of its product or service.
 Written mission statement provides focus for decision making when shared by
organizational managers and employees.
 communicates and identifies the purpose of the organization to all stakeholders.

Mission statements can be used for evaluating organization performance.

 1. Review and define the organizational mission

Traditional components found in mission statements are:

Major products and services.

Target customers and markets.
geographical domain.
organizational philosophy.
 key technologies.
 public image.
 contribution to society.
 2. Set Long-Range Goals and Objectives

 Objectives translate the organization mission into specific,

concrete, measurable terms.

 Set targets for all levels of the organization.

 Objectives answer in detail where a firm is headed and when it is

going to get there.
2. Set Long-Range Goals and Objectives
Characteristics of Objectives

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 State when the objective can be achieved,

that is, duration
EXHIBIT 2.1

2–17
 3. Analyze and Formulate Strategies to Reach Objectives

Strategy formulation includes determining and

evaluating alternatives that support the organization’s
objectives and selecting the best alternative.

 Strategy Formulation goes through two steps:

Step 1: Evaluation of the past and current position of
dfffdddthe enterprise
Step 2: Analyze the internal and external
ffffffffffenvironment
 3. Analyze and Formulate Strategies to Reach Objectives

 Strategy Formulation goes through two steps:

Step 1: 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.”
 3. Analyze and Formulate Strategies to Reach Objectives
Strategy Formulation goes through two steps:
Step 2: Analyze the internal and external environment
 3. Analyze and Formulate Strategies to Reach Objectives

What are the internal strengths and weaknesses of the enterprise?

Examples of internal strengths or weaknesses could be core competencies,

such as technology, product quality, management talent, low debt, and dealer
networks. Managers can alter internal strengths and weaknesses.

Step 2 Cont’d
 3. Analyze and Formulate Strategies to Reach Objectives
What are the External Opportunities and Threats ?
 Opportunities and threats usually represent external forces for change such as
technology, industry structure, and competition.
 Competitive benchmarking tools are sometimes used here to assess current and future
directions.
 Opportunities and threats are the flip sides of each other. That is, a threat can be
perceived as an opportunity, or vice versa.
 Examples of perceived external threats could be a slowing of the economy, a maturing
life cycle, exchange rates, or government regulation.
 Typical opportunities are increasing demand, emerging markets, and demographics.

Step 2 Cont’d
 3. Analyze and Formulate Strategies to Reach Objectives
 From SWOT analysis, critical issues and a portfolio of strategic alternatives are identified.
These alternatives are compared with the current portfolio and available resources; strategies
are then selected that should support the basic mission and objectives of the organization.

 Critical analysis of the strategies includes asking questions: Does the strategy take advantage
of our core competencies? Does the strategy exploit our competitive advantage? Does the
strategy maximize meeting customers’ needs? Does the strategy fit within our acceptable risk
range?

 Strategy formulation ends with cascading objectives or projects assigned to lower divisions,
departments, or individuals. Formulating strategy might range around 20 percent of
management’s effort, while determining how strategy will be implemented might consume 80
percent.
 4. Implement Strategies Through Projects

Implementation must include attention to several

4
key areas: 3
First, completing tasks requires allocation of
resources (funds, people, management talents,
technological skills, and equipment) 1
5
Second, a formal and informal organization that
complements and supports strategy and projects
(Authority, responsibility, and performance all
depend on organization structure and culture)
2
 4. Implement Strategies Through Projects

Third, planning and control systems must be in place to

be certain project activities necessary to ensure strategies
are effectively performed.

Fourth, motivating project contributors will be a major

factor for achieving project success.

Finally, an area receiving more attention in recent years

is prioritizing projects.
2.2 Scenario Planning: A Supplement to
Traditional Strategic Planning
Scenario Planning major steps :
Assessing Your Core Business and Industry

Potential Scenarios and Impact

Potential Strategies

Triggers
2.2 Scenario Planning: A Supplement to
Traditional Strategic Planning
Scenario Planning :
Assessing Your Core Business and Industry

The first step of scenario planning is clarification and agreement on the core business of your
organization and the environment in which it exists. What product or service does your
organization provide society? How fast is your industry changing? What are the driving
environmental forces that can cause your industry to change? How long would it take for your
industry to make a major change to a new direction—e.g., technology breakthrough, new
legislation, political movement or regulation? Reviewing the core business and drivers up front
provides a foundation for thinking about scenarios that can alter the model your organization
uses to provide its service or product.
2.2 Scenario Planning: A Supplement to
Traditional Strategic Planning
Scenario Planning :
Potential Scenarios and Impact

The next step is brainstorming potential global forces that could have a substantial impact and
alter the way your organization does business. Typical global forces influencing scenarios are
social, technological, environmental, economic, political (STEEP), and global institutions.

With perhaps over 100 potential events identified, the team narrows the list to a small number of
events that could alter your current business model. The few remaining potential scenarios (say
2–4) are evaluated to determine what each scenario means for your organization and to assess
how you may address the event if it occurs.
2.2 Scenario Planning: A Supplement to
Traditional Strategic Planning
Scenario Planning :
Potential Strategies

Assuming the scenario occurs, what strategy(s) would you use to move the organization to
respond to the change? How does the industry make major changes today—in 1–2 years, 3–5
years, 6–10 years? Given your core competencies, is your organization capable of changing to
operate in this future environment? How would your competition react to this new scenario?
What strategic options would work best for your organization?
2.2 Scenario Planning: A Supplement to
Traditional Strategic Planning
Scenario Planning :
Triggers
Finally, scenario planning concludes with identifying early indicators for different scenarios and
establishing “triggers” that tell you the event is quickly approaching and detailed strategic
planning is needed. What upstream factors and driving forces cause the scenario to move
forward (technology, political, economic, and social)? What must come true for the scenario
event to materialize and cause you to take action?
2.3 The Need for an Effective Project Portfolio
Management System
Implementation of projects without a strong priority system linked to strategy creates
problems, Three of the most obvious problems are :
The Implementation Gap

Organization Politics

Resource Conflicts and Multitasking

2–31
 2.3 The Need for an Effective Project Portfolio
Management System
Problems 1
The Implementation Gap :The lack of understanding and consensus on strategy among top
management and middle-level (functional) managers who independently implement the
strategy.

Some symptoms of organizations struggling with strategy disconnect and unclear

priorities are :
1. Conflicts frequently occur among functional managers and cause lack of trust.
2. Frequent meetings are called to establish or renegotiate priorities.
3. People frequently shift from one project to another, depending on current priority.
4. Employees are confused about which projects are important.
5. People are working on multiple projects and feel inefficient.
6. Resources are not adequate.

2–32
 2.3 The Need for an Effective Project Portfolio
Management System
Problems 2
Organization Politics: Project selection is based on the persuasiveness and power of people
advocating the projects.
 The term “sacred cow” is often used to denote a project that a powerful, high ranking official is
advocating.
 Project sponsors are typically high-ranking managers who endorse and lend political support for
the completion of a specific project. They are instrumental in winning approval of the project and
in protecting the project during the critical development stage.
 Politics can play a role not only in project selection but also in the aspirations behind projects.
 Top management needs to develop a system for identifying and selecting projects that reduces the
impact of internal politics and fosters the selection of the best projects for achieving the mission
and strategy of the firm.
 2.3 The Need for an Effective Project Portfolio
Management System
Problems 3
Resource Conflicts and Multitasking: Multi-project environment creates interdependency
relationships of shared resources which results in the starting, stopping, and restarting projects.

 The problems of sharing resources and scheduling resources across projects grow exponentially
as the number of projects rises.
 People working on several tasks concurrently are far less efficient, especially where conceptual
or physical shutdown and startup are significant. Multitasking adds to delays and costs.
 This capacity overload inevitably leads to confusion and inefficient use of scarce organizational
resources.

2–34
2.3 The Need for an Effective Project Portfolio
Management System
Benefits of Project Portfolio Management
Builds discipline into the project selection process.
Links project selection to strategic metrics.
Prioritizes project proposals across a common set of criteria, rather than on ijpolitics
or emotion.
Allocates resources to projects that align with strategic direction.
Balances risk across all projects.
Justifies killing projects that do not support strategy.
Improves communication and supports agreement on project goals. EXHIBIT 2.2

2–35
2.4 A Portfolio Management System
Design of a project portfolio system should include:
 Classification of a project
 Selection criteria depending upon classification
 Sources of proposals
 Evaluating proposals
 Managing the portfolio of projects.

2–36
Classification of The Project: Portfolio of Projects by Type

FIGURE 2.2

2–37
 Selection Criteria

Selection Criteria
Financial models: payback, net present value (NPV)
Non-financial models: projects of strategic importance to the firm.

Two Multi-Criteria Selection Models

Checklist Models: basically uses a list of questions to review
potential projects and to determine their acceptance or rejection.
Multi-Weighted Scoring Models: Use several weighted selection
criteria to evaluate project proposals
.

2–38
 Selection Criteria: Financial Criteria

The Payback Model

 Measures the time the project will take to recover the project investment.
 Uses more desirable shorter paybacks.
 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 (yrs) = Estimated Project Cost/Annual Savings

2–39
 Selection Criteria: Financial Criteria

The Net Present Value (NPV) model

 Uses management’s minimum desired rate-of-return (discount rate) to compute the
present value of all net cash inflows.
 Positive NPV: project meets minimum desired rate
of return and is eligible for further consideration.
 Negative NPV: project is rejected.

2–40
 Selection Criteria: Financial Criteria

Example Comparing Two Projects Using Payback Method

EXHIBIT 2.3a

2–41
 Selection Criteria: Financial Criteria

Example Comparing Two Projects Using Net Present Value Method

EXHIBIT 2.3b

2–42
 Selection Criteria: Non Financial Criteria
A firm may support projects that do not have high profit margins for other strategic reasons including:
To capture larger market share
To make it difficult for competitors to enter the market
To develop an enabler product, which by its introduction will increase sales in more
dprofitable products
To develop core technology that will be used in next-generation products
To reduce dependency on unreliable suppliers
To prevent government intervention and regulation
To restore corporate image or enhance brand recognition
To demonstrate its commitment to corporate citizenship and support for community
ddevelopment.

2–43
 Multi-Criteria Selection Models
Checklist Model
 Uses a list of questions to review potential projects and to determine their
acceptance or rejection.
 Fails to answer the relative importance or value of a potential project and doesn’t to
allow for comparison with other potential projects.

Multi-Weighted Scoring Model

 Uses several weighted qualitative and/or quantitative selection criteria to evaluate
project proposals.
 Allows for comparison of projects with other potential projects

2–44
Multi-Criteria Selection Models/Checklist Models
Sample Selection Questions Used in Practice
Topic Question

Strategy/alignment What specific strategy does this project align with?

Driver What business problem does the project solve?

Success metrics How will we measure success?

Sponsorship Who is the project sponsor?

Risk What is the impact of not doing this project?

Risk What is the project risk to our organization?

Risk Where does the proposed project fit in our risk profile?

Benefits, value, ROI What is the value of the project to this organization?

Benefits, value, ROI When will the project show results?

Objectives What are the project objectives?

EXHIBIT 2.4

2–45
Multi-Criteria Selection Models/Checklist Models
Sample Selection Questions Used in Practice/CONT’D
Topic Question

Organization culture Is our organization culture right for this type of project?

Resources Will internal resources be available for this project?

Approach Will we build or buy?

Schedule How long will this project take?

Schedule Is the time line realistic?

Training/resources Will staff training be required?

Finance/portfolio What is the estimated cost of the project?

Portfolio Is this a new initiative or part of an existing initiative?

Portfolio How does this project interact with current projects?

Technology Is the technology available or new?

EXHIBIT 2.4 cont’d

2–46
Multi-Criteria Selection Models/Multi-weighted Scoring Models
Project Screening Matrix

FIGURE 2.3

2–47
2.5 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 align projects closer
with the organization’s strategic goals.
Benefits of Selecting a Model:
 Reduces the number of wasteful projects
 Helps identify proper goals for projects
 Helps everyone involved understand how
and why a project is selected

2–48
2.5 Applying a Selection Model
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

A structured process Culling through so many proposals to identify those that add the most value.

Responsibility for Prioritizing (Managing the Portfolio)

Prioritizing requires discipline, accountability, responsibility, constraints, reduced flexibility, and loss of
power.
 Senior management input
 The priority team (project office) responsibilities

2–49
Ranking Proposals and
Selection of Projects

Project
Screening
Process

FIGURE 2.5

2–50
Sources and Solicitation
of Project Proposals

A Proposal Form
for an Automatic
Vehicular
Tracking (AVL)
Public
Transportation
Project

FIGURE 2.4A

2–51
Sources and Solicitation
of Project Proposals

Risk
Analysis
for
500-Acre
Wind
Farm

FIGURE 2.4B
2–52
Ranking Proposals and
Selection of Projects

Priority
Analysis

FIGURE 2.6

2–53
2.6 Managing the Portfolio System
Senior Management Input
Provide guidance in selecting criteria that are aligned with the
organization’s strategic goals
Decide how to balance available resources among current projects

The Priority Team Responsibilities

Publish the priority of every project
Ensure that the project selection process is open and free of power
politics.
Re-assess the organization’s goals and priorities
Evaluate the progress of current projects
2–54
 Balancing the Portfolio for Risks and Types of Projects

Two types of risk are associated with projects:

First, are risks associated with the total portfolio of projects,

which should reflect the organization’s risk profile.

Second, are specific project risks that can inhibit the execution of
a project, such as schedule, cost, and technical (covered in detail
in Chapter 7).

2–55
Balancing the Portfolio for Risks and Types of Projects

Project Portfolio Matrix

FIGURE 2.7
FIGURE 2.7
 Balancing the Portfolio for Risks and Types of Projects
 Project Portfolio Matrix
Bread-and-butter Projects
Involve evolutionary improvements
to current products and services.

Pearls
Represent revolutionary commercial opportunities using proven
technical advances.

Oysters
Involve technological breakthroughs
with high commercial payoffs.

White Elephants
Showed promise at one time
but are no longer viable. 2–57
End of Chapter 2

2–58