MODULE 1 CHAPTER 2 WEEK 2-3

PA 114 – PROJECT MANAGEMENT

MODULE
RACHELE
FRANCIS M.H.CUTILLON
ROSE CALARANAN

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 CHAPTER 2
Strategic Management and Project Selection

OBJECTIVES

At the end of this chapter, the learner will be able to:

Analyze the project management maturity of different organizations;

Adapt the project selection process in the choice of project portfolio;
Develop an optimal combination of numeric and non-numeric models for
project selection using suggested criteria;
Synthesize the process involved in project portfolio management;
Develop a business project proposal using the technical approach.

Strategy is making a decision how the organization will compete its rivals in the
industry where it is participating. A project converts strategy into a new product,
service, and process. Hence, it is vital for the success of a project to be parallel with
strategic goals of the organization. A strong link to the organization's is a must for every
project. The project manager should therefore have a very good understanding of
the strategy and mission being implemented by the organization.

On the other hand, strategy management is responding to changes in the

external environment for competitive position. It is a key requisite for survival to always
keep updated of external changes through continuous scan of the political-legal,
economic, socio-cultural, technological and natural (PESTN) environment of the
organization. Thus, with fitting mission and strategy, a project must be chosen that is
consistent with the strategic goals of the organization.

PROJECT MANAGEMENT MATURITY

How to tie a project or groups of projects more strongly to the organization's

goals and strategy, how to manage the increasing quantity of ongoing projects, and
how to create these projects successfully are the challenges being faced by modern-
day organizations. Managing the growing figure of ongoing projects and completing
them more fruitfully are the objectives relating to project management maturity.

Project management maturity is the progressive advancement of project and

multi-project management proficiency in approach, methodology, strategy, and
decision-making process. The appropriate level of maturity will differ for every
organization based on its definite goals, strategies, resource capabilities, scope, and
needs.

Illustrated in a pyramid format (see Figure 2) is a generic model that shows the
progression in project management maturity. The project maturity model reflects that
maturity is a continuous process of improvement via identifiable incremental steps.

Typically, an organization starts with unplanned project management

practices, with no common language and methods to undertake a project. As the
firm becomes more mature, it establishes common practices for adoption, begins to
train pool of project management professionals, set up procedures and processes for

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launching and controlling its projects among others. Lastly, at the last stage the
organization does not only make project management a significant part of its
operations but explores ways to make continuous improvements of its techniques and
procedures.

Source: Project Management: Achieving Competitive Advantage, 2010 by Jeffrey K.

Pinto

Figure 2 Generic Model of Project Management Maturity

PROJECT SELECTION AND MODELS

All projects need resources partly or completely made available by the

organization itself. Since most resources are scarce not all of the projects a firm
wanted to do can be provided with enough workforce or sufficiently supported
financially. As a result, projects in diverse areas will rival with each other to get staffing
and funding support of the organization. A wise project selection is very important to
respond to the problem of resource limitations in the organization.

Project selection is the process of appraising a project or groups of projects and

afterward deciding to execute some of them in order to realize the objectives of the
organization. It is a first process to appraise each project proposal and decide on the
premier priority project/s for more analysis. Usually stakeholders who would benefit
from the project, management and the project manager are part of the project
selection process. Project selection follows a four-stage process namely the
identification of project/s, evaluation and prioritizing projects, selection and initiation
of projects and review of projects (see Figure 3).

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Figure 3 The Generic Process of Project Selection

The first step calls for the naming of the project concepts or ideas with a written
brief description of each project. In the second step each project is evaluated using
different criteria and models and the outcomes become the basis for prioritization.
Project selection and initiation is the step that logically follows evaluation and
prioritization focusing mainly on the delicate decision of staffing the project teams.
After project selection a regular review of project/s is imperative to find out if they are
still in-line with the strategy of the firm. One way of checking is to repeat the preliminary
evaluation with more precise estimates as they become accessible. Another way of
evaluating is to hold regular project management review meetings to spot key
problems on a per-project basis, using project status reports.

There are various factors that require to be reflected on prior to an

organization's decision to take up a project once it has been proposed. The most
doable project needs to be selected, bearing in mind the goals and requirements of
the organization. For this reason, selecting a project using the correct model must be
given paramount worth.

Since project selection is a decision-making activity it is easier to use models for

this purpose. A model offers an abstraction of a more intricate reality. However, a
model is just a fractional version of the certainty it intended to replicate and
cannotproduce an optimal decision. It is also important to remember that the project
manager makes the decision not the model.

There are diverse project selection models used by modern business

organizations. Two widely-used basic types of models for project selection are
nonnumeric and numeric. As the name suggests nonnumeric models do not utilize
numbers as inputs (see Table 3). These models are older and simpler. Numeric models

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make use of numbers to measure both objective and subjective criteria (see Table 4).
Sometimes a combination of the two is used by organizations

Table 3 Nonnumeric Models of Project Selection

MODELS DEFINITION SAMPLE APPLICATION

1. Sacred Cow It is a project undeveloped idea
recommended by a for a new product,
senior and influential for the
official in the organization. development of a
"Sacred" in the sense that new market, for the
it will be maintained until design. and
successfully concluded, or adoption of a
until the boss, personally, global database
identifies the idea as a and information.
failure and terminates it. system, or for some
other project
requiring an
investment of the
firm's resources.
2. The Operating The project is obligatory in a protective dike if
Necessity order to keep the system a flood is
operating: does not threatening the
necessitate a great extent plant of a factory
of formal evaluation.
online library
search system
3. Competitive The choice to embark on Restructure
Necessity restructure the project is undergraduate
founded on a desire to and graduate
preserve the company's programs due to
competitive position in declining student
that market. enrollment and the
need to create
stronger programs
students to attract

modernize
manufacturing
facility

get a computer
numerically
controlled
machine to
replace the old
milling machine

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 4. Product line A project to develop and the new Apple
extension distribute new products Ipod which also
evaluated on the level to plays video
which it fits the firm's
present product line, fills a
gap, strengthens a weak
link, or extends the line. in
a fresh, advantageous
direction.
5. Comparative Often used to select from selection of
Benefit model a list of projects that are company cars
complex, difficult to assess
and often non
comparable. The one with
the most benefit to the
firm is selected
Source: Project Management: A Managerial Approach, 8 th Edition, 2012 by Jack R.
Meredith and Samuel J. Mantel

When a firm chooses a project selection model, the following criteria

developed by Shouder (Meredith & Mantel, 2012) are the most significant:

1. Realism – The model should mirror the reality of the manager's decision situation
together with the various objectives of both the firm and its managers, it should take
into consideration the realities of the firm's limitations on facilities, capital, human
resources, technology, and so forth; it includes factors that reveal project risks,
including the technical risks of performance, cost, and time as well as the market risks
of customer rejection and other implementation risks.

2. Capability – The model should be complicated enough to deal with numerous time
periods, simulate different situations both inside and external to the project (like strike,
interest rate changes, system behavior changes, etc.) and optimize the decision; an
optimizing model will formulate the assessments that management believe to be
significant, reflect on key risks and constraints on the projects, and afterward choose
the best project or set of projects in general.

3. Flexibility – The model should offer convincing outcomes among the conditions that
the firm may experience; it should have the ability to be effortlessly modified or to be
self-adjusting in answer to changes in the firm's environment like tax laws change, new
technological advancements alter risk levels, and a change organization's goals.

4. Ease of Use – The model should be realistically convenient, not require a long time
to carry out, and be simple to employ and comprehend; it must not need out of the
ordinary explanation, data that are hard to obtain unnecessary personnel or out of
stock equipment

5. Cost – The data gathering and modeling costs should be low in relation to the cost
of the project and must certainly be less than the probable benefits of the project.

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6. Easy Computerization – The model should be simple and suitable to collect and
accumulate the information in a computer database, and to maneuver data in the
model by using a commonly accessible, standard computer package programs
similar simplicity and handiness should relate to moving the information to any
standard decision support system.

Table 4 Numeric Model of Project Selection

Models Definition Interpretation Limitations

1. Payback 1. It measures the A shorter payback Ignores the
time it will take period, the better. time value
to recover the of money
project Assumes
investment. cash inflows
for the
The formula is: investment
period (and
not
beyond)
Does not
consider
profitably
2. Internal IRR is the discount rate A project should IRR does not
Rate of which equates the only be accepted consider
Return present value of the if its IRR is NOT less cost of
(IRR) future cash flows of an than the target capital
investment with the internal rate of Cannot be
initial investment. It is return. When used to
the discount rate at comparing two or compare
which the net present more mutually projects of
value of an investment exclusive projects different
becomes zero. having highest duration.
value of IRR should
be accepted.
3. Net It is a numerical Positive NPV: the Investment
Present calculation that shows project meets the with the
Value the present value of an minimum desired same NPV
investment based on rate of return and may have
expected income from is eligible for different
that investment in further project lives
future years minus the consideration. and
cost of the project. different
Negative NPV: salvage
The formula is: project is rejected. values
If used to Investment
compare with the
projects, the same NPV
higher NPV the may have
better. different
cash flows

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 Assumption
of the
unknown
future
interest
rates
Assumption
of payment
at the end
of the
period
which is not
always the
case.
4. Benefit – It is the ration of the Project is selected Profitability
cost present value of cash if PI>1; otherwise index can
ratio inflows, at the required rejected. If more be used
rate of return, to the than one project is only to
initial cash outflow of involved, the choose
the investment. Also project with the projects
known as the greatest PI is under
Profitability index. selected from simple, one
among those with period,
The formula is: PI>1. capital
constraint
situation.
Does not
work when
any other
constraint is
imposed, or
when
mutually
exclusive
projects, or
dependent
projects are
being
considered.

PROJECT PORTFOLIO MANAGEMENT (PPM)

Project portfolio management is a set of business practices and systematic

process of selecting, supporting and managing a firm's sets of projects as a strategic
portfolio based on cost, benefits and use of resources ensuring the alignment a
important component of strategic project management. There are key players wh
perform delicate responsibilities in project portfolio management (see Table 5).

Table 5 Key Players and Responsibilities in Project Portfolio Management

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 Business Project Manager Project Portfolio Executive Team
Unit/Sponsor Manager
Any organizational Individual with Manager with Choose corporate
constituent who general responsibility for officers who direct
needs or uses a responsibility for the project and offer inputs to
fraction of the victorious planning portfolio. Usually the PPM process.
budget for the and execution of assisted by a team.
intention of the project. Team may be
accomplishing comprised of
projects. directors of the
business areas.
Each business unit Project managers The project The executive
names projects, work directly with portfolio manager team gives policy
aids project business ascertains the inputs for the
managers in units/sponsors to rules, and process,
building business afford good data procedures for containing weights
cases for for the portfolio creating portfolio for trading off
rationalizing management decisions. The diverse types of
projects, and process. Project portfolio manager project benefits.
defends its projects managers are studies projects The team places
and project responsible for and portfolios targets, endorses
portfolio. The making certain suggested by the budget and
business unit is that endorsed business units and project portfolios,
liable for offering projects carry out commend the and guarantees
quality assurance according to plan. overall project that portfolio
for data portfolio. decisions are
connected to its implemented.
projects.
Source: http://www/prioritysystem.com/reason6b.html

The three phases of the PPM cycle are preparation, execution, and
performance management (see Figure 4).

1. Preparation – A calendar is created and responsibilities are delegated. Corporate

executives set high-level strategy. The executive team institutes monetary and
performance objectives for every business unit and presents rules and a timetable for
carrying out the budgeting progression. With the help of the portfolio manager, the
team sets up essential assumptions for assessment like value weights, discount rates,
and risk tolerance.

2. Execution – Within each business unit, projects are named, categorized, and
properly assembled into groups. Project solution options are investigated. Decision
units for every project are labeled such as go vs. no-go, alternative project solutions,
funding level alternatives and extents for the favored project solution. Project
descriptions are written, like timelines and resource requirements. If project proposal
templates are produced by the PPM software tool at this stage they are already done.
Technical, financial and risks evaluations are accomplished for approximation of the
effects of each project or project grouping on the attainment of corporate and
business unit objectives. Projects within each business unit are prioritized with the aid
of the tool, project and portfolio values estimations. Based on the outcomes, project
plans are modified. Business unit priorities are ascertained and applied to provide

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priorities for the corporate-level and allocate resources across business units. A value
prioritized budget is instituted and spending approvals are decided.

Figure 4 Typical Project Portfolio Management Process Timeline

3. Performance Management – The success of the project portfolio is examined and

supervised by a performance management plan. The performance management
plan spells out project performance markers that permit contrasting predicted and
real performance, aside from observing and reporting schedules. Proje deficits ate
examines, such as reasons, ways for correcting discrepancies, and decisions for
current investments. Lessons discovered are obtained and the PPM process is polished
before the next budget cycle.

A Business Project Proposal: The Technical Approach

The set of documents presented for assessment is called the project proposal
It could be concise or extensive in format. Attention to all details of the proposal is
suggested to amplify the likelihood of success for the project and to astonish promising
investor/s.

The project proposal starts with a broad description of the problem to be solved
or project to be done. A knowledgeable reader must understand the accurate
intention of the proposal, so adequate details must be presented. The general
approach to solve e critical problem should be outlined also. Special requirements of
the client and proposed approaches of meeting them ought to be written down. All
tests and inspection procedures must be noted as well to guarantee performance,
quality, reliability and compliance with specifications.

Estimates of the time needed, the cost and the materials used are placed in
the implementation plan. Hours of labor and quantities of materials employed are
made known beside wage rates and unit material costs. A list of all equipments,

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overhead and administrative costs are also included. In order to ensure that resource
constraints are followed personnel, equipment and resource usages. are recorded on
a periodical basis. Major milestones and contingency plans are distinctively indicated.
Any facility that may be crucial, load charts are planned to make certain that facility
when needed is obtainable.

A description of the capability of the proposal writer to furnish the usual facility,
equipment and skills required during every project is written. Besides, occasional
required capabilities that will provide a "touch of class" must be indicated too.
Considering all details in every aspects of the project planning enhances the chance
of a successful project. It is vital that a section on how to administer the project is full
explained in the proposal. The proper time submission of deliverables like progress
report, budget report, audit report and evaluation are covered plus description of the
final document to be prepared for the consumption of users of the proposed
deliverables. How change orders will be handled and their cost estimations should be
addressed in the administrative section. Simple change/s may cause conflict
between client and the organization doing the project, so it must be cleared even in
the beginning. The organization doing the project must not mislead the potential
client that it is easy to introduce change/s even minor ones during the process of
project implementation.

In order to make strong the proposal, a description of the past experiences of

the proposing team has to be included. It is composed of the list of key project
personnel with their corresponding titles and qualifications. A full resume for each
personnel must be attached to the proposal especially for outside clients. The
intention of this document is to persuade a likely financer of the project that the
proposal and the proposing group are worthy of support.

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