OPIM 432 Ch.02-B Project Selection

Project Management (OPIM 432)
Ch.02-B : Project Selection
Lingga/Fall 2018 OPIM 432 – Project Management 1

Ch.02-B : Project Selection
Learning Objectives
After studying this chapter, you will learn:
• Describe the importance of aligning projects with business strategy, the strategic planning process, and using
SWOT analysis
• Explain the fours-stage planning process for project selection and provide examples of applying this model
to ensure the tragic alignment of projects
• Summarize the various methods for selecting projects and demonstrate how to calculate net present value,
return on investment, payback, and the weighted score for a project
• Discuss the program selection process and distinguish the differences between programs and projects
• Describe the project portfolio selection process and the five levels of project portfolio managment
SCM 432 – Project Management 2

Ch.02-Project Selection
Methods for Selecting Projects

• Common techniques for selecting from among possible projects are:
• Focusing on competitive strategy and broad organizational needs
• Performing net present value analysis or financial projections
• Return on Investment
• Net Present Value Analysis
• Payback Analysis
• Using a weighted scoring model
• Implementing a balanced scorecard
• addressing problems, opportunities, and directives
• Considering project time frame
• Considering project priority


• Using a Weighted Scoring Model
• A weighted scoring model is a tool that provides a systematic process for selecting projects based on many
criteria. These criteria include such factors as:
• Addressing specific problems or opportunities
• The amount of time it will take to complete the project
• The overall priority of the project
• The projected financial performance of the project
• To create a weighted scoring model:
• 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

Procedure to create a weighted scoring model
1. Determine which factors are relevant (e.g., location of market,

water supply, parking facilities, revenue potential).
2. Assign a weight to each factor that indicates its relative
importance compared with all other factors.
3. Decide on a common scale for all factors (e.g., 1 to 100), and
set a minimum acceptable score if necessary.
4. Score each location alternative.
5. Multiply the factor weight by the score for each factor, and
sum the results for each location alternative.
6. Choose the alternative that has the highest composite score,
unless it fails to meet the minimum acceptable score.
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
6
Example 1: Factor Rating
A photo-processing company intends to open a new branch store. The following

table contains information on two potential locations. Which is the better
alternative?
Scores (Out of 100)
Factor weight Alternative 1 Alternative 2
Proximity to
.10 100 60
existing store
Traffic volume .05 80 80
Rental costs .40 70 90
Size .10 86 92
Layout .20 40 70
Operating Costs .15 80 90
7

alternative?
Scores (Out of 100) Weighted Scores

Factor weight Alternative 1 Alternative 2 Alternative 1 Alternative 2
Proximity to
.10 100 60 .10 * 100= 10 .10 * 60= 6
existing store
Traffic volume .05 80 80 .05 * 80= 4 .05 * 80= 4
Rental costs .40 70 90 .4 * 70= 28 .4 * 90= 36
Size .10 86 92 .1 * 86= 8.6 .1 * 92= 9.2
Layout .20 40 70 .2 * 40= 8 .2 * 70= 14
Operating Costs .15 80 90 .15 * 80= 12 .15 * 90= 13.5
Total= 70.6 Total= 82.7
8

alternative?
Scores (Out of 100) Weighted Scores

Factor weight Alternative 1 Alternative 2 Alternative 1 Alternative 2
Proximity to
.10 100 60 .10 * 100= 10 .10 * 60= 6
existing store
Traffic volume .05 80 80 .05 * 80= 4 .05 * 80= 4
Rental costs .40 70 90 .4 * 70= 28 .4 * 90= 36
Size .10 86 92 .1 * 86= 8.6 .1 * 92= 9.2
Layout .20 40 70 .2 * 40= 8 .2 * 70= 14
Operating Costs .15 80 90 .15 * 80= 12 .15 * 90= 13.5
Total= 70.6 Total= 82.7
Answer:
Alternative 2 is better than Alternative 1. So we Choose Alternative 2.
9



• Implementing a Balanced Scorecard
• Dr. Robert Kaplan and Dr. David Norton developed another approach to help select and manage projects that
align with business strategy
• A Balance Scorecard is a methodology that converts an organization’s value drivers, such as customer
service, innovations, operational efficiency, and financial performance, to a series of defined metrics.
• Organizations record and analyze these metrics to determine how well projects help them achieve strategic
goals.
11



• Addressing Problems, Opportunities, and Directives
• This method is based on the project’s response to a problem, an opportunity, or a directive.
• Organizations select projects for any of these reasons. It is often easier to get approval and funding for
projects that address problems or directives because it would avoid hurting the business.
• Problems are undesirable situations that prevent an organization from achieving its goals.
• Opportunities are chance to improve the organization.
• Directives are new requirements imposed by management , government, or some external influence.
• Many problems and directives must be resolved quickly, but managers must also consider projects that seek
opportunities for improving the organization.
13



• Project Time Frame
• Time Frame is 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
• Project Priority
• Project priority is the overall priority of the project.
• Many organizations prioritize projects as high, medium, or low priority based on the current business
environment. Organizations should always focus on high-priority projects.
15


Learning Objectives
After studying this chapter, you will learn:
• Describe the importance of aligning projects with business strategy, the strategic planning process, and using
SWOT analysis
• Explain the fours-stage planning process for project selection and provide examples of applying this model
to ensure the tragic alignment of projects
• Summarize the various methods for selecting projects and demonstrate how to calculate net present value,
return on investment, payback, and the weighted score for a project
• Discuss the program selection process and distinguish the differences between programs and projects
• Describe the project portfolio selection process and the five levels of project portfolio managment

Program Selection
• Recall that a program is a group of projects managed in a coordinated
way to obtain benefits and control 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
• There might already be a program that a new project would logically
fall under, or the organization might initiate a program and then
approve projects for it
18
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
20
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
21
Five Levels of Project Portfolio Management
1. Put all of your projects in one list
2. Prioritize the projects in your list
3. Divide your projects into several categories based
on types of investment
4. Automate the list
5. Apply modern portfolio theory, including risk-return
tools that map project risks
22
Figure 2-11. Sample Project Portfolio Risk Map
Schwalbe, Information Technology Project Management, Sixth Edition, 2010
23
Chapter Summary
• An organization’s overall business strategy should guide the
project selection process and management of those projects
• The four-stage planning process helps organizations align their
projects with their business strategy
• 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
24
Questions ?
25

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Project Management (OPIM 432)

Ch.02-B : Project Selection

Lingga/Fall 2018 OPIM 432 – Project Management 1

SCM 432 – Project Management 2

Methods for Selecting Projects

SCM 432 – Project Management 3

Methods for Selecting Projects

SCM 432 – Project Management 4

1. Determine which factors are relevant (e.g., location of market,

Weighted Score by Project

A photo-processing company intends to open a new branch store. The following

A photo-processing company intends to open a new branch store. The following

Scores (Out of 100) Weighted Scores

A photo-processing company intends to open a new branch store. The following

Scores (Out of 100) Weighted Scores

Methods for Selecting Projects

SCM 432 – Project Management 10

Methods for Selecting Projects

Methods for Selecting Projects

SCM 432 – Project Management 12

Methods for Selecting Projects

Methods for Selecting Projects

SCM 432 – Project Management 14

Methods for Selecting Projects

Methods for Selecting Projects

SCM 432 – Project Management 16

SCM 432 – Project Management 17

• Other projects might spark the need for developing a

Schwalbe, Information Technology Project Management, Sixth Edition, 2010

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