PROJECT

SELECTION
Lecture 2

Dr. Freedom John Ferrera

What is Project Selection

■ Project selection is all about picking the right project at the right time for your
organization. It sounds like it’d be simple, but there are a lot of factors to consider
■ Project selection is the process of evaluating projects to ensure that they align with your
strategic objectives and deliver maximum performance.
■ Project selection takes place during the beginning stages of a project, when you’re
dealing with ideas or suggestions.
■ All selection methods are based on two criteria: benefits and feasibility.
What is Project Selection

■ The benefits of the project take the form of a list of positive outcomes.
– Reasons to take on a project include anything from
■ economic gain to social and cultural significance, or
■ fulfilling commitments from previous agreements.
■ Feasibility, in this context, means the likelihood of a project is a success.
– All projects are risky, and some are very complex. Determining the feasibility of
any project can take time and a lot of research. This process is done in what is
called a feasibility study, which is part of the project initiation stage.
What is Project Selection

■ The project selection process, whether you’re working in project management or

portfolio management, ensures you have enough resources to benefit from the
investment.
■ Once you (or the selection committee) select a project, then you’ll need project
management software to make sure you actually meet the goals and objectives.
Organization Strategy and project
Selection
■ Evaluation will be based on
– Strategic
– Technical
– Economic
r. Organization Strategy and project
Selection
■ Strategy is implemented through projects.

alignment processare:
■ Every project should have a clear link to and contribute value
to the organization’s strategic plan, which is designed to meet
the future needs of its customers.
■ Demands constant attention from top management.
■ Process is needed to clearly align project selection to the
strategic plan of the organization. Otherwise, utilization of

us resources can be poor.

r. Organization Strategy and project
Selection
■ Intended outcomes of alignment process are:

alignment processare:
– Clear organization focus
– Best use of resources
– Improved communication

us
r. Project Managers – Understanding
Strategy
■ Recognizes that project management is at the apex of strategy

alignment processare:
and operations.
■ Project Managers’ role has expanded from getting the job
done to achieving the business results and winning in the
market place.

us
r. Project Managers – Understanding
Strategy
■ There are two reasons why project managers need to

alignment processare:
understand their organization’s mission and strategy.
– So that they can make appropriate decisions pertaining to
their projects.
– So that they are able to demonstrate to the senior
management how their project contributes their firm’s
mission.

us
SWOT

■ Strengths are those positive internal attributes that strengthen your business or team.
You can develop plans to capitalize on those strengths.
■ Weaknesses are those negative internal attributes that are working against your success.
You can shore up those weaknesses so they don’t stop your success.
■ Opportunities are those external conditions that can have a positive effect on your goals.
These opportunities can point you in the right direction.
■ Threats are those external conditions that can have a negative effect on your goals.
These threats will affect you less if you can identify and minimize them.
The Project Selection Process

■ The project selection process is the process of evaluating your project ideas in terms of
benefits and feasibility. This can be done by the project portfolio manager, program
manager or project management office (PMO).
■ Effective project selection creates a better return on investment (ROI), which is the
bottom line when talking about financial benefits for any project.
■ The project selection process will help you run a more efficient project. By doing the
due diligence beforehand you can avoid a lot of the inefficiencies that might slow down
a project or worse during execution.
Project Selection Methods

■ 1. Cost-Benefit Analysis
– Cost-benefit analysis is used to estimate the costs and benefits associated with a
particular project. In other words, it’s a method to discover the most cost-effective
way to execute a project.
– This is done by defining all the costs, both direct, indirect, intangible and more
against the benefits, be they direct, indirect and so forth.
Project Selection Methods

■ Scoring Models
– Scoring models are used when the project manager or project selection committee
makes a list of project criteria and scores each according to their relevance,
importance and priority.
– This gives a more objective view of the project. When done, you can put the
projects in a list from best to worst, and the top project will likely be the one more
beneficial and feasible to take on.
Project Selection Methods

■ Payback Period
– One criterion for a successful project is making back the money you’ve invested.
The project payback period is a method to see the ratio between the total cash to
the average cash period (payback period = cost of project / average annual cash
inflows).
– In other words, you can determine how long it will take for you to recover the
investment. However, it doesn’t consider the time value of money nor benefits
accrued after the payback period or risk inherent in the project.
Project Selection Methods

■ Net Present Value

– Net present value is the difference between the current value of cash inflow and the
current value of cash outflow in the project.
– It’s always a positive and the one with the highest net present value is the best
project to select. Unlike the payback period, net present value takes into account
the future value of money.
– However, it doesn’t give a picture of profit or loss and isn’t a method for figuring
out the discount value used for the present value calculation.
Project Selection Methods
■ Constrained Optimization Methods
– This mathematical model of project selection is best when evaluating larger projects that
are more complicated.
– There are three main techniques in the constraint optimization method; integer
programming, linear programming and dynamic programming.
■ Integer Programming
– This method involves looking at a decision that involves integer values, not fractional ones.
■ Linear Programming
– This method is about reducing the project cost by shortening the time necessary to complete
the project. Therefore, it involves the examination of how long it takes to run any particular
activity in the project. If you have to add effort to an activity, that means it will cost more
and likely be less attractive.
■ Dynamic Programming
– This method is used to break complex problems into a series of simpler ones. However, you
have to decide if the problem is suited for dynamic programming. If it is, then dynamic
programming will help you make a sequence of correlated decisions. It allows you to see
the best combination of decisions.
Project Selection Methods

■ Internal Rate Of Return

– This method deals with the interest rate when the net present value is at zero (that
is, when the present value of the outflow is equal to the present value of the flow.)
– Another way to refer to this is as the annualized effective compounded return rate
or discount rate that leaves the net present value of all your cash flows from an
investment at zero.
– This method helps determine which project will offer your organization the
greatest profitability.
Project Selection Methods

■ Discounted Cash Flow

– This method takes into account inflation or the likely fact that today’s money isn’t
going to have the same value as the same amount of money in the future.
– Therefore, you need to take into account the discounted cash flow when calculating
the cost investment and return on investment of any potential project or project
proposal over the project life cycle you plan to undertake.
Project Selection Methods

■ Opportunity Cost
– This method is used when evaluating two projects. You make the choice by
selecting the project that has the lower opportunity cost.
– The opportunity cost is the possible loss of a future return from the second-best
option on your list of potential projects.
– In other words, it’s the potential return you won’t realize by taking the other project
and must be part of your project management or project portfolio management.
Project Selection Methods

■ Internal Rate Of Return

– This method deals with the interest rate when the net present value is at zero (that
is, when the present value of the outflow is equal to the present value of the flow.)
– Another way to refer to this is as the annualized effective compounded return rate
or discount rate that leaves the net present value of all your cash flows from an
investment at zero.
– This method helps determine which project will offer your organization the
greatest profitability.
Assessment

■ What is the role of Project Managers in Project Selection process?

■ What is the most critical part in project selection?
■ Why is it important for the Project Managers to understand the Organization Strategy?
References

■ https://www.projectmanager.com/blog/project-selection-for-better-strategic-results
■ https://www.scribd.com/presentation/205329353/PM-Chapter-02-Organization-
Strategy-and-Project-Selection#
■ https://www.coursehero.com/file/p2r7r15/Strategic-Planning-and-Project-Selection-
1222-PM-Dr-Patick-K-Wamuyu-7-Strategic/#:~:text=Strategic%20planninginvolves
%20determining%20long,for%20new%20products%20and%20services.