Chapter 2:

Project, Program, and

Portfolio Selection

Note: See the text itself for full citations. Text website is www.intropm.com.
Aligning Projects with Business Strategy
 Most organizations cannot undertake most of the
potential projects identified because of resource
limitations and other constraints
 An organization’s overall business strategy should guide

the project selection process and management of those

projects

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Strategic Planning
 Strategic planning involves determining long-term
objectives by analyzing the strengths and weaknesses
of an organization, studying opportunities and threats
in the business environment, predicting future trends,
and projecting the need for new products and services
 Strategic planning provides important information to

help organizations identify and then select potential

projects
 A strategic plan usually includes the organization’s

mission, vision, and goals for the next 3-5 years

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Nemours Children’s Hospital Example
 Mission: To provide leadership, institutions, and services to
restore and improve the health of children through care and
programs not readily available, with one high standard of quality
and distinction regardless of the recipient’s financial status
 Vision: Freedom from disabling conditions
 Goals:
◦ Be a leader in improving children’s health through our integrated health
system; becoming a pre-eminent voice for children
◦ Care for each and every child as if they were our own
◦ Be a great place to work
◦ Be effective stewards of all of our assets, continually improving them to
advance our mission

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SWOT Analysis
 SWOT analysis involves analyzing Strengths,
Weaknesses, Opportunities, and Threats
 It can help you identify potential projects

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Let’s say you own a homemade bakery. You want to conduct a SWOT
analysis for your overall business.

https://smallbusiness.patriotsoftware.com/swot-analysis/

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Mind mapping
 Some people like to perform a SWOT analysis by using
mind mapping.
 Mind mapping is a technique that uses branches

radiating out from a core idea to structure thoughts and

ideas.
 By putting those ideas down in a visual mind map

format, you can often generate more ideas than by just

creating lists.

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Mind map of an SWOT analysis (example).

https://www.biggerplate.com/mindmaps/Qfr9Z6BU/swot-analysis-template

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Project planning processes for project
selection
 Many organizations follow a traditional approach, often
completed in four stages
 To make more timely decision, they may also use an

agile approach

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Traditional Project Planning Process
 Organizations often follow a detailed planning
process for project selection, often done on an annual
basis
 Figure 2-3 shows a four-stage planning process for

selecting projects
 It is very important to start at the top of the pyramid

to select projects that support the organization’s

business strategy

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Figure 2-3. Pyramid for a Traditional
Project Planning Process

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Agile Approach to Project Planning
 Oxford Dictionaries (July 2017) defines agile as:
◦ “able to move quickly and easily”
◦ “Relating to or denoting a method of project management,
used especially for software development, that is characterized
by the division of tasks into short phases of work and frequent
reassessment and adaptation of plans”

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Methods for Selecting Projects
 Focus on competitive strategy and broad organizational
needs
 Perform net present value analysis or other financial

projections
 Use a weighted scoring model
 Implement a balanced scorecard
 Address problems, opportunities, and directives
 Consider project time frame
 Consider project priority

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Focusing on Competitive Strategy and Broad
Organizational Needs

 Competitive strategies:
◦ Cost leadership: Attract customers primarily because
products or services are inexpensive. Examples include
Walmart and Cub Foods
◦ Focus: Develop products and services for a particular market
niche. Examples include Babies “R” Us and Ron Jon Surf
Shop
 Broad organizational needs: People agree there is a
need for a project, they will make funds available,
and there is a strong will to make the project succeed

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Another approach to selecting projects based on
organizational needs is to focus on factors affecting
the organization. These factors can be grouped into:

 Meeting regulatory, legal, or social requirements

 Satisfying stakeholders needs or requests
 Implementing or changing business or technological

strategies
 Creating, improving, or fixing products, processes, or

services

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Figure 2-4. Examples of Factors Leading
to Creation of a Project

Source: Project Management Institute, Inc., A Guide to the Project

Management Body of Knowledge (PMBOK  Guide)– Sixth Edition (2017).
Copyright 2017 Schwalbe Publishing 16
Performing Financial Projections
 Financial considerations are often an important aspect of
the project selection process
 Three important methods include:

◦ Net present value analysis

◦ Return on investment
◦ Payback analysis

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Net Present Value Analysis
 Net present value (NPV) analysis is a method of
calculating the expected net monetary gain or loss from
a project by discounting all expected future cash
inflows and outflows to the present point in time
 Projects with higher NPVs are preferred to projects

with lower NPVs if all other factors are equal

 https://www.youtube.com/watch?v=HFFkFMfotT0

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Figure 2-5. Net Present Value Example

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 Figure 2-6. Detailed NPV Calculations

Discount rate 10%

Year
PROJECT 1 1 2 3 4 5 Total
Benefits $ - $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 8,000,000
Discount factor 0.91 0.83 0.75 0.68 0.62
Discounted benefits $ - $ 1,652,893 $ 1,502,630 $ 1,366,027 $ 1,241,843 $ 5,763,392
Costs $ 4,000,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 6,000,000
Discount factor 0.91 0.83 0.75 0.68 0.62
Discounted costs $ 3,636,364 $ 413,223 $ 375,657 $ 341,507 $ 310,461 $ 5,077,212

Total discounted benefits - costs, or NPV $ 686,180

Note: The discount factors are not rounded to two decimal places.
They are calculated using the formula discount factor =1/(1+discount rate)^year.

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NPV Considerations
 Some organizations refer to the investment year(s) for
project costs as Year 0 instead of Year 1 and do not
discount costs in Year 0
 The discount rate can vary, based on the prime rate and

other economic considerations.

 You can enter costs as negative numbers instead of

positive numbers, and you can list costs before benefits

 Project managers should check to see which approaches

their organizations prefer when calculating NPV

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Figure 2-7. Intranet Project NPV Example

Schwalbe, Information Technology Project Management, Sixth Edition, 2010

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 Steps for Calculating NPV
1. Determine the estimated costs and benefits for the life
of the project and the products it produces.
2. Determine the discount rate. A discount rate is the rate
used in discounting future cash flows. The annual
discount factor is a multiplier for each year based on
the discount rate and year (calculated as 1/(1+r)t, where
r is the discount rate, and t is the year).
3. Calculate the net present value by subtracting the total
discounted costs from the total discounted benefits.

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 Return on Investment
 Return on investment (ROI) is the result of subtracting the
project costs from the benefits and then dividing by the costs.
 For example, if you invest $100 today and next year your
investment is worth $110, your ROI is ($110 – 100)/100, or 0.10
(10 percent)
 Note that the ROI is always a percentage, and the higher the ROI,
the better
 Many organizations have a required rate of return for projects—
the minimum acceptable rate of return on an investment

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Payback Analysis
 Payback period is the amount of time it will take to
recoup—in the form of net cash inflows—the total
dollars invested in a project
 Payback analysis determines how much time will lapse

before accrued benefits overtake accrued and

continuing costs
 Payback occurs in the year when the cumulative

benefits minus costs reach zero

 The shorter the payback period, the better

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Figure 2-8. Charting the Payback Period

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Weighted Scoring Models
 A weighted scoring model is a tool that provides a
systematic process for selecting projects based on many
criteria
 To create a weighted scoring model:

◦ Identify criteria important to the project selection process

◦ Assign a weight to each criterion (so they add up to 100 percent)
◦ Assign numerical scores to each criterion for each project
◦ Calculate the weighted scores by multiplying the weight for each
criterion by its score and adding the resulting values

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Figure 2-9. Sample Weighted Scoring
Model for Project Selection
Criteria Weight Trip 1 Trip 2 Trip 3 Trip 4
Total cost of the trip 25% 60 80 90 20
Probability of good weather 30% 80 60 90 70
Fun activities nearby 15% 70 30 50 90
Recommendations 30% 50 50 60 90
Weighted Project Scores 100% 64.5 57.5 75 66.5

Weighted Score by Project

Trip 4

Trip 3

Trip 2

Trip 1

0 20 40 60 80

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Addressing Problems, Opportunities, and Directives: it is
another method to select a project based on their response to
a problem, opportunity and directives
 Problems are undesirable situations that prevent an
organization from achieving its goals - can be current or
anticipated (e.g. If a bridge in a city collapses, that problem must be addresses
asap).
 Opportunities are chances to improve the organization (a
company provide a booth at a conference to attract more customers).
 Directives are new requirements imposed by
management, government, or some external influence (A
university may have to meet a requirement to discontinue the use of student’s social
security numbers for data privacy).

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Project Time Frame
 Another approach to project selection is based on the time
it will take to complete a project or the date by which it
must be done
 For example, some potential projects must be finished

within a specific time period. If they cannot be finished by

this set date, they are no longer valid projects
 Some projects can be completed very quickly—within a

few weeks, days, or even minutes. However, even though

many projects can be completed quickly, it is still
important to prioritize them

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Project Priority
 Many organizations prioritize projects as being high,
medium, or low priority based on the current business
environment
 Organizations should always focus on high-priority

projects

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 Program Selection
 Recall that a program is a group of related projects,
subsidiary programs, and program activities managed in a
coordinated manner to obtain benefits not available from
managing them individually
 After deciding which projects to pursue, organizations

need to decide if it is advantageous to manage several

projects together as part of a program

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Example Reasons for a Construction Firm to
Create Housing Programs
 Save money: A construction firm can purchase materials,
obtain services, and hire workers for less money if it is
managing the construction of one hundred houses instead
of just one house
 Save time: One person or group can be responsible for

similar work, such as obtaining all the permits for all the
houses
 Increase authority: The program manager can use

authority in multiple situations, such as negotiating

better prices with suppliers and obtaining better services
in a more timely fashion

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Approaches to Creating Programs
 Some new projects naturally fall into existing
programs, such as houses being built in a certain
geographic area
 Other projects might spark the need for developing a
new program
◦ For example, Global Construction might win a large contract
to build an office complex in a foreign country. Instead of
viewing the contract as either one huge project or a part of an
existing program, the company should manage the work as a
single program that comprises several smaller projects

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Project Portfolio Selection
 It’s crucial to focus on enterprise success when creating
project portfolios
 There may be a need to cancel or put several projects

on hold, reassign resources from one project to another,

suggest changes in project leadership, or take other
actions that might negatively affect individual projects
or programs to help the organization as a whole
 For example, a university might have to close a campus

in order to provide quality services at other campuses

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Chapter Summary
 An organization’s overall business strategy should guide the project
selection process and management of those projects
 Many organizations follow a traditional approach, often completed in
four stages. To make more timely decisions, they can also use an
agile approach.
 Several methods are available for selecting projects, including
financial methods (net present value, return on investment, and
payback); weighted scoring models; balanced scorecards; addressing
problems, opportunities, and directives; project time frame; and
project priority
 The main criteria for program selection are the coordination and
benefits available by grouping projects
 The goal of project portfolio management is to help maximize
business value to ensure enterprise success

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