Organization Organization Strategy and Project Strategy and Project

SelectionSelection

Strategy is implemented through projects. Strategy is implemented through projects.

Every project should have a clear link to the organization’s Every project should have a clear link to the organization’s strategystrategy

Strategic Management ProcessStrategic Management Process

Strategic ManagementProvides the theme and focus of the future direction for the company

Strategic Management ProcessStrategic Management Process• Four of Activities of the Strategic Four of Activities of the Strategic

Management ProcessManagement Process

1.1. Review and define the organizational Review and define the organizational mission.mission.

2.2. Set long-range goals and objectives.Set long-range goals and objectives.

3.3. Analyze and formulate strategies to Analyze and formulate strategies to reach objectives.reach objectives.

4.4. Implement strategies through Implement strategies through projects.projects.

Review and define the organizational mission

Set long-range goals and objectives

Analyze and formulate strategies to reach objectives

Implement strategies through projects

Characteristics of ObjectivesCharacteristics of Objectives

S Specific Be specific in targeting an objective

M Measurable Establish a measurable indicator(s) of progress

A Assignable Make the objective assignable to one person forcompletion

R Realistic State what can realistically be done with availableresources

T Time related

Strategic Management ProcessStrategic Management Process

• The Implementation GapThe Implementation Gap• The lack of understanding and consensus on strategy The lack of understanding and consensus on strategy

among top management and middle-level (functional) among top management and middle-level (functional) managers who independently implement the strategy.managers who independently implement the strategy.

• Organization PoliticsOrganization Politics• Project selection is based on the power of people Project selection is based on the power of people

advocating the projects.advocating the projects.• Resource Conflicts and MultitaskingResource Conflicts and Multitasking

• The multiproject environment creates The multiproject environment creates interdependency relationships of shared resources interdependency relationships of shared resources which results in the starting, stopping, and restarting which results in the starting, stopping, and restarting projects.projects.

Project Portfolio Management Project Portfolio Management ProblemsProblems

• The Implementation GapThe Implementation Gap• The lack of understanding and consensus on strategy The lack of understanding and consensus on strategy

among top management and middle-level (functional) among top management and middle-level (functional) managers who independently implement the strategy.managers who independently implement the strategy.

• Organization PoliticsOrganization Politics• Project selection is based on the power of people Project selection is based on the power of people

advocating the projects.advocating the projects.• Resource Conflicts and MultitaskingResource Conflicts and Multitasking

• The multiproject environment creates The multiproject environment creates interdependency relationships of shared resources interdependency relationships of shared resources which results in the starting, stopping, and restarting which results in the starting, stopping, and restarting projects.projects.

Benefits of Benefits of Project Portfolio Project Portfolio ManagementManagement

•Builds discipline into project selection process.

•Links project selection to strategic metrics.

•Prioritizes project proposals across a common set of criteria, rather than on politics or emotion.

•Allocates resources to projects that relevant to strategic direction.•Balances risk across all projects.

•Justifies killing projects that do not support organization strategy.

•Improves communication and supports agreement on project goals.

Evaluation Criteria for ProjectsEvaluation Criteria for Projects

Financial: payback, net present value (NPV), internal rate of return (IRR)

Non-financial: projects of strategic importance to the company or institutions

Checklist Models.

Multi-Weighted Scoring ModelsUse several weighted selection criteria to evaluate project proposals.

Financial ModelsFinancial Models

The Payback Model•Measures the time it will take to recover the project investment.•Shorter paybacks are more desirable.•Emphasizes cash flows, a key factor in business.

Limitations of payback:•Ignores the time value of money.•Assumes cash inflows for the investment period (and not beyond).•Does not consider profitability.

Payback periods = Estimated Project Cost / Annual Savings

Financial ModelsFinancial Models

• The Net Present Value (NPV) ModelThe Net Present Value (NPV) Model

• Uses management’s minimum desired rate-of-return Uses management’s minimum desired rate-of-return (discount rate) to compute the present value of all (discount rate) to compute the present value of all net cash inflows.net cash inflows.

– Positive NPV: the project meets the minimum desired Positive NPV: the project meets the minimum desired rate of return and is eligible for further consideration.rate of return and is eligible for further consideration.

– Negative NPV: project is rejected.Negative NPV: project is rejected.

Non-Financial ModelsNon-Financial Models

• To capture larger market shareTo capture larger market share• To make it difficult for competitors to To make it difficult for competitors to

enter the marketenter the market• To develop core technology that will be To develop core technology that will be

used in next-generation productsused in next-generation products• To reduce dependency on unreliable To reduce dependency on unreliable

supplierssuppliers• To prevent government intervention To prevent government intervention

and regulationand regulation

Non-Financial ModelsNon-Financial ModelsChecklist Selection ModelChecklist Selection Model

• Strategy alignment: What specific organization does this Strategy alignment: What specific organization does this project align with?project align with?

• Driver: What business problem does the project solve?Driver: What business problem does the project solve?• Success metrics: How will we measure success?Success metrics: How will we measure success?• Sponsorship: Who is the project sponsor?Sponsorship: Who is the project sponsor?• Risk: What is the impact of not doing this project?Risk: What is the impact of not doing this project?• Risk: What is the project risk to our organization? Risk: What is the project risk to our organization? • Benefits: What is the value of the project to this Benefits: What is the value of the project to this

organization?organization?• Organization culture: Is our organization culture right for Organization culture: Is our organization culture right for

this type of project? this type of project? • Approach: Will we build or buy?Approach: Will we build or buy?• Training/resources: Will staff training be required?Training/resources: Will staff training be required?• Finance: What is estimated cost of the project?Finance: What is estimated cost of the project?• Portfolio: How does the project interact with current Portfolio: How does the project interact with current

projects?projects?

Non-Financial ModelsNon-Financial ModelsWeighted Scoring ModelWeighted Scoring Model

Critical Success factors