PROJECT SCOPE

MANAGEMENT

Lesson 3

Portfolio Management
 Class objective

• Understand choice in choosing a project

selection model
• Understand different approaches to project
screening and selection
• Non-financial models
• Financial models

• Understand Portfolio Management

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 CHOSING THE RIGHT
PROJECT SELECTION MODEL
 Project Selection

• Selected model must be:

• Realistic
• Adaptable (capability)
• Flexible
• Easy to use
• Cost-effective
• Objective (comparability)

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 Realistic project selection model

• Model must reflect organizational objectives

• Criteria must be reasonable
• Consider organization’s reality
• Commercial and technical risks
• Performance
• Cost
• Time
• Etc.

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 Adaptable (capability) project selection model

• Model must be able to adapt to changes in

conditions (economy, technology, size, duration,
etc.)
• Can adapt to adding new criteria or constraints

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 Flexible project selection model

• Model should be easily modifiable

• Adjust to changes in the organization’s reality:
• Exchange rate
• Tax laws
• Building code
• Etc.

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 Easy to use project selection model

• Easy to use by all sector of the organization

• The results of the selection must be

understandable

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 Cost-effective project selection model

• Cheap to use

• Rapid to use – no excessive time to set-up, to

use and to obtain results

• An expensive model will not be used, leading to

poor project choices

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 Objective project selection model offering

• Model can be applied to multiple projects

• Results can be compared and offer value

• No interpretation of what the results mean

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NON-FINANCIAL SELECTION
MODELS
 Non-Financial selection models

• Checklist Model

• Simplified scoring Model

• Analytical Hierarchy Process

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 Checklist Model

• Model which uses a checklist to determine

the projects that better align with the
company strategic objectives.

• Assessment is made to determine the

level at which the projects meet each
criteria.

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 Checklist Model

• Examples of criteria:
Corporate objectives Criteria

Offer affordable products Cost of development

Remain a leader in the industry Level of innovation

Increase profitability High cost to price ratio

Maintain quality of offering Product durability

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Checklist Model

2
3 and 4 ?

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 Simplified scoring model

• Similar to the checklist model, but each

criterion is given a score
• Offers more objective results
• May resolve selection conflicts

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 Simplified scoring model

• Methodology:
• Identify criteria
• Assign importance weight
• Assign score values to each criteria
• Weight x Score
• Add weighted score

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Identify criteria and assign importance weight

Criterion Importance Weight

Time to market 3
Profit Potential 2
Development risks 2
Cost 1

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Simplified scoring model

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 Examples of other criteria that could be used

• Impact on staff (tolerance to change)

• Number of departments affected (capacity)
• Effect on customers (reputation)
• Cost of project
• Impact on customer service
• Impact on quality of product
• Impact on customer satisfaction
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 Analytical Hierarchy Process (AHP)

• More sophisticated model that allows for a more

objective assessment.
• More difficult to build
• Simple to use since each criteria is assessed by
itself
• Criteria can be subdivided
• Each criteria is given a score based on
qualitative assessment which translates in a
quantitative result.
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 Analytical Hierarchy Process (AHP)

• Method:
• Structure the hierarchy of criteria
• Allocate weights to criteria
• Assign numerical values to evaluation
dimensions
• Evaluate project proposal

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Structure the hierarchy of criteria and assign weight

• Example:
Criteria Details Sub-criteria %
Finance Project will lead to - Long term
financial success - Short term 50

Strategy Project is in-line - Increase market share

with strategic plan - Retain clients 35
- Improve cost management

Technology Allow increased use

of current 15
technology

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 Assign numerical value to evaluation criteria

• Example:
Criteria Sub criteria % Evaluation criteria Scoring
0 to 6 months 5
6 months to 1 year 3
Short term 30%
1 to 2 year 1
Finance More than 2 years 0
2 to 5 years 5
Long term 70% 5 to 7 years 3
More than 7 years 1

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 Evaluate project proposal

• See Excel spreadsheet:

AHP Analysis (Example).xlsx

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FINANCIAL SELECTION
MODELS
 Different models

• Return on investment
• Payback period
• Discounted payback
• Net Present Value (NPV)
• Internal Rate of Return

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 Return on Investment

• Calculation demonstrating the saving /

gain the organization experience after the
project is completed.

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 Return of investment

• Example:
• A hospital invest $500,000 to acquire a new
dialysis machine.
• Installing this machine will increase the
number of procedures by 25% thus increasing
overall revenue by $75,000 per year
• This new machine uses new supplies that
represents an economy of $100,000 per year

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 Return on investment

• Example:
Revenue
Saving
Year Investment (no. of Balance
(Supplies)
procedure)
0 $500,000 ($500,000)
1 $75,000 $100,000 ($325,000)
2 $75,000 $100,000 ($150,000)
3 $75,000 $100,000 $25,000
4 $75,000 $100,000 $200,000
5 $75,000 $100,000 $375,000

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 Project Portfolio Management

• The systematic process of selecting,

supporting, and managing the firm’s
collection of project

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Project Portfolio Management

Decision
Making

Re-prioritization Prioritization

Realignment Review

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