YRahmawati MP MBITS 2ndweek

Department of Business Management
Institut Teknologi Sepuluh Nopember
(Manajemen Proyek TB 141207)
2nd week course material:

Project Selection
Dr. Yani Rahmawati

yanirahmawati@mb.its.ac.id
ProjectManagement/MB-ITS/YRahmawati/2017
A. Understanding background
What is project Project selection is an effort/endeavor to
selection? review, evaluate, and choose the most priority
Why learning strategy is project to deliver strategic goals.
important to project Knowing strategy is important because of
selection
some appearing issue, i.e. unfinished project
because doesnt integrated with organization
resources, useless efforts and resources on
project because it doesnt fit the organization
strategic goal
B. Understanding Linkage
B. Understanding Linkage
C. Overview: Strategic Management
1. Terminology
2. Essential Roles
3. The Facts
4. The Process
5. Main activities of Activities of the strategic management process:
the process 1 2 3 4
Review and Analyze Set Implement
define the and objectives strategies
organizatio- formulate to achieve through
nal mission strategies strategy projects
1. Terminology Activity 1: identify missions
Review and define the organizational mission
2. Essential Roles
3. The Facts 1. Build mission statements: identify the scope of organiza-
tion in terms of product/services identify what we want
4. The Process to become.
5. Main activities of 2. Mission statement provides focus for decision making and
decrease the chance of false directions.
the process
3. Mission statement communicates purpose of the organiza-
tion to all stakeholders, in which can be used to evaluate
the organization performance.
4. Mission statements consist of major products & services,
geographical domain, organizational philosophy, key
technologies, public images, contribution to society, etc.
5. Revised mission and strategy statements are required
whenever the nature of business changes/shifts.
6. Mission statements has to be made in specific to give
tighter results. They set the parameters to develop
objectives.
1. Terminology Activity 2: identify critical issues & strategic alternatives
Analyze and formulate strategies
2. Essential Roles
3. The Facts 1. Formulating strategy to answer what needs to be done to
reach objectives.
4. The Process
2. 1st STEP: determine and evaluate alternatives
5. Main activities of realistic evaluation of the firms past & current position:
the process analyze who are the customers and what are they need.
3. 2nd STEP: select best alternatives
assessing internal & external environments: Strength,
Weaknesses, Opportunity, and Threats (SWOT analysis).
4. Critical analysis of the purposed strategy is essential to
support the basic mission.
1. Terminology Activity 3: setting objectives
2. Essential Roles Set objectives to achieve strategy
3. The Facts 1. Objectives translate strategy into specific.
4. The Process 2. Objectives answer in detail: where firm is headed and
when it is going to get there.
5. Main activities of
the process 3. Objectives cover markets, products, innovation, producti-
vity, quality, finance, profitability, consumers.
Memory device to write objectives (Doran, 1981)
S PECIFIC Be specific in targeting an objective
M EASURABLE Establish a measurable indicator(s) of progress

Make the objective assignable to one person for
A SSIGNABLE
completion
State what can realistically be done with available
R EALISTIC
resources
State when the objective can be achieved, that is,
T IME RELATED
duration
1. Terminology Activity 4: conceptualizing implementation strategy
2. Essential Roles Implement strategies through projects
3. The Facts 1. Implementation answers the question of how stra-
4. The Process tegies will be realized, given available resources.
5. Main activities of 2. Implementation must include attention to:
the process 1st Completing tasks requires allocation of
resources (funds, people, management
talents, technological skills, equipment).
2nd Implementation requires formal & informal
organization that support strategy &project.
3rd Planning & control system must be mainly
considered to ensure that strategies are
effectively performed.
4th Motivating project contributors will be
major factor for achieving project success.
D. Portfolio Management System
1. Background Implementation of projects without strong priority
2. Problems in system linked to strategy will create problems.
implementing
projects There are three obvious problems:
3. Role of portfolio 1. The implementation gap
management
system 2. Organization politics
4. Portfolio 3. Resource conflicts and multitasking

management
system:
Classification
projects
1. Background Problem 1: The Implementation Gap
2. Problems in Lack understanding & agreement of organization
implementing strategy among top and middle-level manager
projects
1. Regularly, strategies are formulated by top management.
3. Role of portfolio The implementation are then given to functional managers.
management
2. Detailed strategies & objectives are developed individu-
system ally by functional managers.
4. Portfolio 3. Disconnected strategies & unclear priorities causes:
management a. Lack of trust produced conflicts between managers.
system: b. Conducting frequent meeting to renegotiate priority.
Classification c. People frequently shifts projects that caused confusion
projects about project priority.
d. Inadequate resources and inefficient projects.
4. Unclear strategy linkage caused conflict of interest (stra-
tegy & projects priority) that lead to infective projects and
strategy implementation.
1. Background Problem 2: Organization Politics
2. Problems in The use of persuasiveness & power of people
implementing advocating project in project selection
projects 1. Politics play role on project selection & aspiration behind
3. Role of portfolio projects. Project sponsor play vital roles in this situation.
management 2. Project sponsors are typically high-ranking managers who
system endorse & lend political support for completion of specific
project. They are instrumental in winning proposals and
4. Portfolio
protect the project during critical development stage.
management
system: 3. Project selection (priority) is not based on the strategy. It
relies on peoples power & status.
Classification
projects 4. Peoples obsession to move up quickly the corporate ladder
causes high motivation to pursue high profile, extraordi-
nary, and critical project. This make other projects are less
concerned. Yet, the strategies are not well realized.
5. Systems in handling this issue are essentially needed.
1. Background Problem 3: Resource conflicts and multitasking
2. Problems in Multitasking in handling multi projects
implementing 1. Competition between PMs can be contentious. All PMs
projects seek to have the best people & resources for their projects.
3. Role of portfolio 2. Multitasking is essential. Issues of resources sharing &
management scheduling are arising in line with PMs ego and the imple-
system mentation of multi projects.
4. Portfolio 3. People working on several tasks are inefficient.
management Multitasking adds delays and costs.
system: 4. System in making projects rank & priorities that are aligned
Classification with strategic are essential.
projects
1. Background 1. Limited resources and issue of implementation gap,
organization politics, and multitasking causes the
2. Problems in importance of evaluating and selecting projects that
implementing supports high level strategies & objectives.
projects
2. Single project priority system that ranks projects by their
3. Role of portfolio contribution to strategic plan is suitable solution.
management 3. Organization starts to selecting the right portfolio of
system projects to achieve their strategic objectives.
4. Portfolio 4. Advantages of project portfolio system:
management a. Builds discipline onto project selection process.
system: b. Links project selection to strategic metrics.
Classification c. Prioritizes project proposals across common set criteria,
rather than politics/emotion.
projects
d. Allocates resources to projects that align with strategic
directions.
e. Balances risks across all projects.
f. Etc.
1. Background 1. Aims to ensure that projects are aligned with strategic
goal and prioritized appropriately what is strategic to
2. Problems in our organization.
implementing
2. Provides information that allows people to make better
projects
business decision.
3. Role of portfolio
management
system
Design of project portfolio system must includes:
4. Portfolio
management Selection
system: Classification
criteria
Evaluating
Managing
Classification depending portfolio of
of project proposals
upon projects
projects classification
1. Background
2. Problems in
implementing
projects Three basic kind of project for portfolio:
3. Role of portfolio
management
system
4. Portfolio Compliance Operational Strategic
management Emergency (must Needed to Directly support
system: do project) support current organizations
Those that are operations long-run mission
Classification needed to meet Design to impro- Directed toward
projects regulatory condi- ve efficiency of increasing reve-
tion delivery system, nue or market
Ex: building auto reduce product share
parts factory that cost, and impro- Ex: new products,
are destroyed by ve performance research, deve-
tsunami Ex: providing new lopment
machines/system
E. Selection Criteria
1. Financial Criteria: The models are appropriate when there is high level if
confidence associated with estimates of future cash flows
Financial models
2. Nonfinancial PAYBACK MODEL (PP)
Criteria: 1. Measures the time it will take to recover project investment
a. Checklist models (concern to the payback period).
b. Multi-weighted 2. Shorter paybacks are more desirable.
scoring model 3. Emphasizes cash flows (key factor in business).
4. Limitation: ignores the time value
5. Formula:
Estimated Project Cost
Payback Period (yrs) =
Annual Savings
1. Financial Criteria: The models are appropriate when there is high level if
confidence associated with estimates of future cash flows
Financial models
2. Nonfinancial NET PRESENT VALUE MODEL (NPV)
Criteria: 1. Computes the present value of all net cash inflows.
a. Checklist models 2. If the result is positive, the project is eligible for further
consideration, and vise versa.
b. Multi-weighted
scoring model 3. Formula:
1. Financial Criteria: Example:
Financial models Project A has initial investment of $700,000 and projected
cash inflow of $225,000 for 5 years
2. Nonfinancial Project B has initial investment of $400,000 and projected
Criteria: cash inflows of $110,000 for 5 years.
a. Checklist models
COMPARING PROJECT A & PROJECT B USING PAYBACK PERIOD
b. Multi-weighted
scoring model
Taken from Larson&Gray (2014), pp. 38
Result: Project A gives the fastest payback period
1. Financial Criteria: Example:
Financial models Project A has initial investment of $700,000 and projected
cash inflow of $225,000 for 5 years
2. Nonfinancial Project B has initial investment of $400,000 and projected
Criteria: cash inflows of $110,000 for 5 years.
a. Checklist models
COMPARING PROJECT A & PROJECT B USING NPV
b. Multi-weighted
scoring model
Result: Project A gives positive value of NPV
1. Financial Criteria: 1. Financial return is not the only essential criteria. There
are other vital criteria that reflects strategic importance.
Financial models
2. Strategic purposes the long term goals, yet developing and
2. Nonfinancial maintaining core competencies is essential.
Criteria:
3. In delivering strategic goals, companies have to be
a. Checklist models disciplined in saying no to potentially profitable projects
that are outside of their core mission.
b. Multi-weighted
scoring model 4. Some of strategic reasons that are not related with
financial return:
a. To develop core technology that will be used in next-
generation products.
b. To make it difficult for competitors to enter the market.
c. To capture larger market share.
d. To develop the company value: restore corporate brand
or enhance brand recognition.
5. Two models of nonfinancial criteria:
a. Checklist models
b. Multi-weighted scoring model
1. Financial Criteria: 1. Uses list of questions to review potential projects and to
determine their acceptance/rejection.
Financial models
2. Allows great flexibilities in selecting among many different
1. Nonfinancial types of project and are easily used across different
Criteria: divisions and locations.
a. Checklist models Sample selection questions
b. Multi-weighted
scoring model
1. Financial Criteria: Limitation of checklist models:
Financial models 1. Fails to answer relative importance of potential project to
organization.
1. Nonfinancial
2. Fails to compare with other potential projects, because
Criteria:
each potential project will have different set of positives
a. Checklist models and negatives answers.
b. Multi-weighted 3. Open to potential opportunity power plays, politics, and
scoring model other forms of manipulation.
1. Financial Criteria: Uses several weighted selection criteria to evaluate project
proposals, in which including qualitative and/or quantitative
Financial models criteria.
1. Nonfinancial
Criteria: How the selection applied:
a. Checklist models 1. Each selection criteria is assigned a weight.
b. Multi-weighted 2. Scores are assigned to each criteria for the project, based
scoring model on its importance to the project.
3. The weights and scores are multiplied to get a total
weighted score for the project.
4. Projects are then can be compared based on the weighted
score.
5. Projects with higher weighted scores are considered
better.
NOTE: it is important to be careful in selecting factors for the

criteria, because its failure can lead to the useless efforts.
1. Financial Criteria: EXAMPLE OF PROJECT SCREENING MATRIX
(Using The Multi Weighted Scoring Model)
Financial models
1. Nonfinancial
Criteria:
a. Checklist models
b. Multi-weighted
scoring model
F. Applying Selection Model
1. Sources & Example of
solicitation of proposal form:
project proposal Automatic
Vehicular
2. Ranking proposals & Tracking Public
selection of projects Transportation
Project
Taken from:
Larson&Gray (2014), pp. 44
1. Sources & Example of preliminary risk analysis:
solicitation of Risk analysis for a 500-acre wind farm
project proposal
2. Ranking proposals &
selection of projects
1. Sources & Project Screening Process
solicitation of
project proposal
1. Sources & Example
solicitation of of priority
project proposal screening
analysis
265
G. Managing Portfolio System
1. The management 1. The portfolio system, as well as the priority system, can be
process managed by:
a. Small group of employees in small organization.
2. Balancing portfolio b. Project office or governance team of senior manager.
for risks and types
2. Managing portfolio system needs two major input from
of project senior management:
a. Provides guidance in establishing selection criteria that
strongly align with current organization strategy.
b. Annually decides how they wish to balance available
organizational resources (people & capital) among
different type of projects by top management.
3. The governance team has main responsibility to publish
the priority of every project and ensuring the process is
open and free from power politic.
G. Managing Portfolio System
1. The management 1. Balancing projects by type, risk, and resource demand is
process important responsibility requires total organization
perspective.
2. Balancing portfolio 2. A high score/rank project may not be selected because of
for risks and types the organization portfolio already includes too many
of project projects with similar characteristics.
3. Resource usage needs to be optimized across all projects.
Yet, organizational risks is also essential to be balanced.
4. The related risks includes ability to execute, time to market,
and technology advances.
References
Most of materials in this lecture are adopted from:

Larson, E.W., and Gray, C.F., (2014), Project Management: The
Managerial Process, 6th Ed., New York: McGraw-Hill Education.
Supporting literatures:
Cleland, DI, (2004), Field Guide to Project Management, 2nd Ed., New
Jersey: John Wiley & Sons.
Longman, A, and Mullins, J., (2004), Project Management: Key Tool
for Implementing Strategy, Journal of Business Strategy, vol. 25.,
No. 5., pp. 54-60.

YRahmawati MP MBITS 2ndweek

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Department of Business Management

Institut Teknologi Sepuluh Nopember

(Manajemen Proyek TB 141207)

2nd week course material:

Dr. Yani Rahmawati

Memory device to write objectives (Doran, 1981)

S PECIFIC Be specific in targeting an objective

M EASURABLE Establish a measurable indicator(s) of progress

4. Portfolio 3. Resource conflicts and multitasking

Taken from Larson&Gray (2014), pp. 38

Result: Project A gives the fastest payback period

Taken from Larson&Gray (2014), pp. 38

Result: Project A gives positive value of NPV

Taken from Larson&Gray (2014), pp. 40

NOTE: it is important to be careful in selecting factors for the

Taken from Larson&Gray (2014), pp. 41

Taken from Larson&Gray (2014), pp. 45

Taken from Larson&Gray (2014), pp. 45

Taken from Larson&Gray (2014), pp. 45

Most of materials in this lecture are adopted from:

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