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2 - Continued Project Selection

Project selection and portfolio management are important processes for companies. [1] Screening models can help senior management select successful projects from a pool of opportunities. [2] Companies should use approaches like checklists, scoring models, profile models, or financial models to evaluate projects objectively. [3] Portfolio management ensures a company's collection of projects align with its strategic goals and available resources.

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Kenny Mak
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26 views

2 - Continued Project Selection

Project selection and portfolio management are important processes for companies. [1] Screening models can help senior management select successful projects from a pool of opportunities. [2] Companies should use approaches like checklists, scoring models, profile models, or financial models to evaluate projects objectively. [3] Portfolio management ensures a company's collection of projects align with its strategic goals and available resources.

Uploaded by

Kenny Mak
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Project Selection and

Portfolio Management

3-1
Selecting a Project

3-2
Apple Dilemma
• How Apple needs to select projects/products.
• How in your view Apple should make this
decision?
• What criteria should they use? And why?

3-3
How to Select Projects
• Having infinite resources allow us to take every opportunity
• Screening models should help Senior Management pick winners
from a pool of projects.
• Realism: reflect organisational objectives.
• Capability: allow the company to deal different types of projects
and allow the company to use them as wide as possible
• Flexibility: can be easily modified when the environment
changes, adding more criteria for example (Loose Fit).
• Ease of use: can be used by people in different parts of the
organisation, it should be easily understood.
• Cost effectiveness: not expensive to use otherwise people may
not used it, cost of obtaining information should be low
• Comparability; broad enough to be applied to multiple projects
and allows comparisons between alternatives.
3-4
Screening & Selection Issues
• Screening models are numeric or nonnumeric and should have:
• The Factors that need to be considered in evaluating project
alternatives are numerous
1. Risk – unpredictability to the firm
– Technical, financial, safety, legal, quality/reputation…
2. Commercial – market potential
– ROI, Payback period, market share, initial cash investment,
ability to generate future business
3. Internal operating – changes in firm operations
– Training needs, recruitment needs, changing the physical
environment, changes to manufacturing or service
operations
4. Additional–impact on image, patent, strategic fit, etc.
3-5
Approaches to Project Screening
• All models only partially reflect reality and have
both objective and subjective factors imbedded

1. Checklist model

2. Simplified scoring models

3. Profile models

4. Financial models

3-6
1. Checklist Model
A checklist is a list of criteria applied to possible
projects.

 Requires agreement on criteria

 Assumes all criteria are equally important

Checklists are valuable for recording opinions and


encouraging discussion

3-7
2. Simplified Scoring Models
Each project receives a score that is the weighted sum of its grade
on a list of criteria. Scoring models require:

 Assign importance weights to each criterion, rely on collective


group judgment

 Assign score values to each criterion in terms of its rating for each
project

 Multiply importance weights by scores to arrive at weighted score


for each criteria for each project

 Add the weighted scores to arrive at an overall project score.


3-8
Project criteria Importance Score (B) Weighted
weight (A) score (AxB)
Project Alpha cost 3 3 9
Profit potential 2 2 4
Risk 4 2 8
Duration 1 1 1

Total weighted 22
score

3-9
3. Profile Models
Show risk/return options for projects.
X6
Maximum Criteria
Desired Risk X2
X4 X5 selection as
R axes
i X3
s X1
k Efficient Frontier
Rating each
Minimum project on
Return
Desired Return criteria

3-10
Advantages and Disadvantages
• Profile model gives managers an opportunity to
map out potential returns while considering the
risks that comes with every choice.
• However it limits the decision makers to a small
number of criteria, two, risk and return.
• Values need to be attached to risk which tend not
to be quantified
3-11
4. Financial Models
Based on the time value of money principal

• Payback period
• Net present value (NPV)
• Internal rate of return

3-12
Choosing a Project Selection Approach
• Failure in this area can be due to:
1. Not being objective
– Sacred cows and senior managers projects are pushed to
the front and financially “tweaked”.

2. Some models maybe more appropriate to certain


companies and certain projects.
• Making a good project selection is a crucial step to
ensuring good project management downstream.

3-13
Project Portfolio Management
PPM is the systematic process of selecting, supporting, and managing
the firm’s collection of projects.
Projects should share a common strategic purpose and the same
scarce resources
The challenge is to balance between long term objectives and short
term needs and constraints. Senior Managers should ask:
• What projects the company should fund?
• Does the company have the resources to support them?
• Do these projects reinforce future strategic goals?
• Does this project make good business sense?
• Is this project complementary to other company projects?
3-14
Portfolio Management Tasks
• Decision making: Proceeding in a particular strategic direction
is influenced by market conditions, capital availability,
perceived opportunity and acceptable risk.

• Prioritization: based on cost, opportunity, top management


pressure, risk, strategic fit, desire for portfolio balance.

• Review: projects that satisfy the company priorities

• Realignment: when a new project is added to a portfolio the


company needs to examine whether that has an impact on
the attainment of the strategic goals.

3-15

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