BUS 5003

Project Management

Session 2a
Professor: Kevin Yam (kevin.yam@humber.ca)
 Agenda

1. Class Norms & BlackBoard Check-In

2. Introduction to Project Management

3. Organizations
• Project Selection
• Culture

4. For Next Class…

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 Class Norms
 We will be on time - at the start of class, after the break, and after
small-group discussions

 We will turn our phones to silent mode, take emergency calls

outside the classroom, and only use other electronic devices
(laptops, tablets, etc.) for class purposes

 We will show respect to each other by; raising our hands to speak; giving our
attention to the speaker; not interrupting each other or shouting; not
engaging in any side conversations; and accepting multiple points of view by
not making disrespectful comments about different opinions and not taking it
personal when others disagree with our perspective

 We will provide constructive feedback using neutral or positive language,

and try not to judge each other

 We will all be prepared and participate in this class – we will; share opinions,
experiences and opportunities; review assignments to clarify understanding
and expectations; and honor commitments made to each other
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 Course BlackBoard site

• Can you access the site? Any challenges?

• You’ll need to access the site to view

 Announcements, Course Materials & Additional Readings
 Learning Materials: modules will be posted the morning before
class (i.e. these slide decks)
 Getting Started: weekly syllabus / critical path
 Assignments: Discussion Questions, Group Project
( templates, rubrics & submissions), Participation, Feedback &
Grading

• If a file does not download for you – please let me

know ASAP and I will repost it!
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 Chapter Two
Organization Strategy and Project Selection

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 Where We Are Now

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 Learning Objectives
1. Explain why it is important for project managers to
understand their organization’s strategy
2. Identify the significant role projects contribute to the
strategic direction of the organization
3. Understand the need for a project priority system
4. Apply financial and nonfinancial criteria to assess
the value of projects
5. Understand how multi-criteria models can be used
to select projects
6. Apply an objective priority system to project
selection
7. Understand the need to manage the project portfolio
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 Chapter Outline

2.1 The Strategic Management Process: An

Overview
2.2 The Need for a Project Priority System
2.3 A Portfolio Management System
2.4 Selection Criteria
2.5 Applying a Selection Model
2.6 Managing the Portfolio System

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 Why Project Managers Need
to Understand Strategy

Two main reasons project managers need to understand their

organization’s mission and strategy:
1. So, they can make appropriate decisions and adjustments.
– How a project manager would respond to a suggestion to modify the
design of a product or to delays may vary depending upon strategic
concerns.

2. So, they can be effective project advocates. They have to be able to:
– demonstrate to senior management how their project contributes to the
firm’s mission in order to garner their continued support.
– explain to stakeholders why certain project objectives and priorities are
critical in order to secure buy-in on contentious trade-off decisions.
– explain why the project is important to motivate and empower the
project team (Brown, Hyer and Ettenson, 2013).
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 The Strategic Management Process:
An Overview
• Strategic Management Defined
• 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.”
• Is a continuous, iterative process aimed at developing an
integrated and coordinated long-term plan of action.
• Requires strong links among mission, goals, objectives, strategy,
and implementation.
• Two Major Dimensions of Strategic Management:
1. Responds to changes in the external environment and allocates
the firm’s scare resources to improve its competitive position.
2. Internal responses to new action programs aimed at enhancing
the competitive position of the firm.

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 Four Activities of the Strategic
Management Process
The sequence of activities of the strategic management process is:

1. Review and define the organizational mission

– The mission identifies “what we want to become.” Mission statements identify the scope of
the organization in terms of its product and service.

2. Analyze and formulate strategies

– Formulating strategy answers the question of what needs to be done to reach objectives.
Strategy formulation includes determining and evaluating alternatives that support the
organization’s objectives and selecting the best alternative.

3. Set objectives to achieve strategies

– Objectives translate the organization strategy into specific, concrete, measureable terms.
Objectives answer in detain where a firm is headed and when it is going to get there.

4. Implement strategies through projects

– Implementation answers the question of how strategies will be realized, given available
resources.
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Strategic Management Process

FIGURE 2.1
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 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
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 The Need for a Project Priority System
Implementation of projects without a strong priority system linked to strategy
create problems.

Problem 1: The Implementation Gap

• The implementation gap is the lack of understanding and consensus of
organization strategy among top and middle-level managers.

Problem 2: Organization Politics

• Project selection may be based not so much on facts and sound reasoning
as on the persuasiveness and power of people advocating projects.
• The term sacred cow is often used to denote a project that a powerful,
high-ranking official is advocating.

Problem 3: Resource Conflicts and Multitasking

• A multi-project environment creates the problems of project
interdependency and the need to share resources. Resource sharing
leads to multitasking—involves starting and stopping work on one task to
go and work on another project, then returning to the work on the original
task.
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 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 politics or emotion
• Allocates resources to projects that align with
strategic direction
• Balance's risk across all projects
• Justifies killing projects that do not support strategy
• Improves communication and supports agreement
on project goals

EXHIBIT 2.2
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 A Portfolio Management System

• Design of a project portfolio system:

– Classification of a project
– Selection criteria depending upon classification
– Sources of proposals
– Evaluating proposals
– Managing the portfolio of projects.

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 Portfolio of Projects by Type

FIGURE 2.2
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 Phase Gate Model
Phase Gate Model
• Is a series of gates that a project must pass through in order to be
completed.
• Its purpose is to ensure that the organization is investing time and
resources on worthwhile projects that contribute to its mission and
strategy.
• Each gate is associated with a project phase and represents a
decision point.
• A gate can lead to three possible outcomes: go (proceed), kill
(cancel), or recycle (revise and resubmit).

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Phase Gate Process Diagram

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 A Portfolio Management System

• Selection Criteria
– Financial models: payback, net present value (NPV)
– Non-financial models: projects of strategic
importance to the firm
• Multi-Criteria Selection Models
– Use several weighted selection criteria to evaluate
project proposals.

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 Financial Models
• 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.

• The Payback formula is

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 Financial Models (cont’d)

• 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.

n = Number of years
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 Example Comparing Two Projects
Using Payback Method

EXHIBIT 2.3A
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 Example Comparing Two Projects
Using Net Present Value Method

EXHIBIT 2.3b
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 Nonfinancial Strategic Criteria

Examples of strategic objectives are:

• 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 profitable 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 development
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 Two Multi-Criteria Selection Models
• Checklist Model
– Uses a list of questions to review potential projects and to
determine their acceptance or rejection.
– Allow greater flexibility in selecting among many different types
of projects and are easily used across different divisions and
locations.
– 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.
– Include qualitative and/or quantitative criteria.
– Allows for comparison of projects with other potential projects.
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 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
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 Sample Selection Questions Used in Practice

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

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 Project Screening Matrix

FIGURE 2.3
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 Applying a Selection Model

• Project Classification
– Deciding how well a strategic or operations project
fits the organization’s strategy
• Selecting a Model
– Weighted scoring criteria seem the best alternative
because:
• Reduces the number of wasteful projects
• Helps identify proper goals for projects
• Helps everyone involved understand how
and why a project is selected

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 Applying a Selection Model (cont’d)

• 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
– Evaluating each proposal in terms of feasibility, potential
contribution to strategic objectives, and fit within a portfolio of
current projects.
– Rejecting or accepting the projects based on given selection
criteria and current portfolio.
– Prioritizing projects by senior management.
• Managing the Portfolio
– Senior management input
– The governance team (project office) responsibilities
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 A Proposal Form for
an Automatic
Vehicular Tracking
(AVL) Public
Transportation
Project

FIGURE 2.4A
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 Risk
Analysis for
500-Acre
Wind Farm

FIGURE 2.4B
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 Project
Screening
Process

FIGURE 2.5
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 Priority
Screening
Analysis

FIGURE 2.6
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 Managing the Portfolio System
• Senior Management Input
– Provides guidance in establishing selection criteria that
strongly align with the current organization strategies.
– Annually decides how to balance the available
organizational resources (people and capital) among the
different types of projects.
• The Governance Team Responsibilities
– Publish the priority of every project.
– Ensure the selection process is open and free of power
politics.
– Evaluate the progress of current projects.
– Constantly scan the external environment to determine if
organization focus and/or selection criteria need to be
changed.

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 Balancing the Portfolio for
Risks and Types of Projects
David and Jim Matheson studied R&D organizations and developed a classification scheme that
could be used for assessing a project portfolio. They separated projects in terms of degrees of
difficulty and commercial value. The four basic types of projects are:

• 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.

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 Key Terms

Implementation gap
Net present value
Organizational politics
Payback
Priority system
Priority team
Project portfolio
Project screening matrix
Project sponsor
Sacred cow
Strategic management process
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