Project Selection

Techniques for selecting

projects

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 organizations
techniques and suggest improvements

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 organizations
strategic direction (throw-aways)

Overview of PS Issues
1.

2.

3.

4.

5.

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?

Project Management
Office
What role should it play?

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.

Project Proposals
How to document a potential
project

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

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

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

Project Proposal:
Implementation and support approach

Rough Order of Magnitude of effort and

cost
Impacts on equipment, facilities, staff
In-house resource capability versus outsourcing potentiality
Termination success statement
Potential logistic support needed
Other success needs

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

Project Selection Models

Global and Local Criteria

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

Types of Models

Numeric versus Non-numeric

Stochastic versus Deterministic
Analytical versus Descriptive
Diagrammatic versus Textual
Complex, multifaceted versus
Simple, single dimension

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

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

Q-Sort

Numeric PS Models:
Profit / Profitability

Payback Period (PB)

Average Rate of Return
Discounted Cash Flow (NPV)
Internal Rate of Return
Profitability Index

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 = (sw), w=weight

S = (sw) (c),
c=constraint

Benefits of Scoring Models

Structurally simple
Multiple decision criteria
Easy to modify
Easy to do what if or sensitivity
analysis
Weights provide flexibility

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

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

Risk Analysis with Crystal Ball

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

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

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

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

Probability Distributions for Inputs

Risk Analysis: Output

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?

End