1. Techniques for selecting projects
Project Selection
Techniques for selecting projects

2. Learning Objectives
Understand basic evaluation models for selecting projects
Understand various techniques and approaches to evaluating potential projects
Understand the utility of computer tools in project selection
Be able to evaluate your organization’s techniques and suggest improvements

3. Why is Project Selection Important?
The FIRST STEP in successful projects
Wasted resources with starts and stops, high-risk, high-cost projects
Lost opportunity costs of not doing the “right” projects
Completion of projects that do not contribute to the organization’s strategic direction (throw-aways)

4. Overview of PS Issues
Project Management Office (PMO): What role should it play? How can it help?
Project Proposals: How is the list of potential projects built?
Strategically selecting best Projects: What global criteria should be used?
Project Selection: What local, individual criteria are important
Dealing with Uncertainty: How important is risk analysis at this stage?

5. Project Management Office
What role should it play?

6. Potential Roles for the PMO
Define proposal formats and requirements
Collect proposals
Do preliminary screening based on criteria (local and global)
Convene Strategic Board (Decision makers)
Recommend and provide details to decision making board
Follow-up on getting project approved, funded, organized, and initiated.

7. How to document a potential project
Project Proposals
How to document a potential project

8. Project Proposal: Content
Executive summary
Statement of need and business benefits of project
Nature of problem to be solved and general approach to a solution
Approach for implementation and support for the project
Description and experience of potential project team

9. Project Proposal: Statement of need and Business Benefit
Description of the need in general terms (non-technical)
Why it is a need now – urgency
Business Benefits
Tangibles and intangibles

10. Project Proposal: Technical Approach
More detailed description of problem to be addressed or project to be undertaken
Major subsystems of problem or project
Methodology or approach of solving the problem
Possibly alternative analysis
Special client requirements

11. Project Proposal: Implementation and support approach
Rough Order of Magnitude of effort and cost
Impacts on equipment, facilities, staff
In-house resource capability versus out-sourcing potentiality
Termination success statement
Potential logistic support needed
Other “success” needs

12. Project Proposal: In-house staff and skills requirement
Key project staff required
Estimate of skills required
Availability of required project staff
Impacts on organization departments and personnel

13. Project Selection Models
Global and Local Criteria

14. Models – Benefits
Real world problems are much too complex to analyze in their entirety
A Model is an attempt to identify and isolate the “essential” elements of the real world problem in order to simplify enough for analysis
Models can provide valuable “insight” into the elements of a problem

15. Types of Models Numeric versus Non-numeric
Stochastic versus Deterministic
Analytical versus Descriptive
Diagrammatic versus Textual
Complex, multifaceted versus Simple, single dimension

16. Characteristics of “Good” Model
Realistic – Should include all “important” variables of the real problem
Capable – Should be able to integrate the variables into the algorithm
Flexible – Should handle various combinations of variables, including new ones
Easy to use – Should be intuitive, not requiring a long or steep learning curve
Computerized – To alleviate the workload of using it

17. Non-numeric Selection Models
Sacred Cow (The boss wants it)
Mandatory due to operations
Mandatory due to competition
Mandatory due to legislation (legal)
Extension of existing activities, projects, products, or processes
Comparative Benefits (Opinion based)
Discussion
Delphi
Q-Sort

18. Q-Sort

19. Numeric PS Models: Profit / Profitability
Payback Period (PB)
Average Rate of Return
Discounted Cash Flow (NPV)
Internal Rate of Return
Profitability Index

20. Numeric PS Models: Scoring
Unweighted 0-1 Factor Model
Unweighted Factor Scoring Model
Weighted Factor Scoring Model
Constrained Weighted Factor Scoring Model
S = ∑(x), x=0,1
S = ∑(s), s=score
S = ∑(s·w), w=weight
S = ∑(s·w) ∏(c), c=constraint

22. Benefits of Scoring Models
Structurally simple
Multiple decision criteria
Easy to modify
Easy to do “what if” or sensitivity analysis
Weights provide flexibility

23. Drawbacks of Scoring Models
It is a “ranking” method, but does NOT necessarily represent “true” value
Quantitative value may cause decisions without “judgment”
Assigning values sometimes is haphazard
Input value changes (assumptions) may cause large swings in results

24. Choosing the PS Model
Firms with outside funding often chose scoring PS models
Firms without outside funding often chose profit / profitability PS models
80% of Fortune 500 firms also use “nonnumeric” PS models

25. Risk Analysis with Crystal Ball

26. Including Risk Analysis – Stochastic Models
Instead of assigning a fixed value to a raw score, assign a range of values and a probability.
Probability is usually more “realistic”
It may also be more “correct”

27. Areas of Uncertainty Project timing & expected cash flow.
Direct outcome of project, i.e. what exactly will the project accomplish
Side effects and unforeseen consequences of project

28. Introduction to Monte Carlo Technique
Outputs are a result of an algorithmic combination of inputs
if the inputs cannot be determined with confidence, then provide a probability range
Monte Carlo Simulation picks an input value, based on the probability function, for each variable and calculates the result from the algorithm
This is done numerous times (500 or 1000) and the results are plotted

29. Crystal Ball A Monte Carlo Tool that plugs into Excel
Any formula or calculation that can be done in Excel can be modified to use probabilities and Monte Carlo Simulation

30. Probability Distributions for Inputs

31. Risk Analysis: Output

32. Self Assessment
What are some of the roles of the PMO in project selection?
What should be included in a project proposal?
How does a Q-Sort work?
How does a Scoring Model work?
What is a Monte Carlo technique?
What is Crystal Ball? How does it work?

33. End