PE 511 Project Management

‫ إدارة مشاري ع‬511 ‫ـه نف‬

Chapter Two
Organization Strategy
and Project Selection
Spring 2023

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 Strategic Management Process

• Strategic management is the process of assessing

“what we are” and deciding and implementing “what
we intend to be and how we are going to get there.”
• Strategy describes how an organization intends to
compete with the resources available in the existing
and perceived future environment.

Why Project Managers Need to Understand

the Strategic Management Process?
• Changes in the Organization’s Mission and
Strategy
– Project managers must respond to changes with
appropriate decisions about future projects and
adjustments to current projects
– Project managers who understand their
organization’s strategy can become effective
advocates of projects aligned with the firm’s mission

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 The Strategic Management Process:
An Overview
• Strategic Management
– Provides the theme and focus of the future
direction for the firm
• Responding to changes in the external environment—
environmental scanning
• Allocating scarce resources of the firm to improve its
competitive position—internal responses to new action
programs
– Requires strong links among mission, goals,
objectives, strategy, and implementation

Strategic Management Process (cont’d)

• Four Activities of the Strategic Management

Process:
1. Review and define the organizational mission
2. Set long-range goals and objectives
3. Analyze and formulate strategies to reach
objectives
4. Implement strategies through projects

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 Strategic
Management
Process
SWOT
What are we now?

What do we intend
to be?

How are we going

to get there?

Characteristics 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 for completion

R Realistic State what can realistically be done with available resources

T Time related State when the objective can be achieved, that is, duration

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 Project Portfolio Management Problems

• The Implementation Gap

– The lack of understanding and consensus on strategy
among top management and middle-level (functional)
managers who independently implement the strategy
• Organization Politics
– Project selection is based on the persuasiveness and
power of people advocating the projects
• Resource Conflicts and Multitasking
– The multiproject environment creates interdependency
relationships of shared resources which results in the
starting, stopping, and restarting projects

Benefits of Project Portfolio Management

• 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 align with strategic
direction
• Balances risk across all projects
• Justifies killing projects that do not support organization
strategy
• Improves communication and supports agreement on
project goals

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 Portfolio of Projects by Type

A Portfolio Management System

• Selection Criteria
– Financial: payback, net present value (NPV),
internal rate of return (IRR)
– Non-financial: projects of strategic importance to
the firm.
• Multi-Weighted Scoring Models
– Use several weighted selection criteria to evaluate
project proposals.

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 Financial 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

Financial Models (cont’d)

• The Net Present Value (NPV) Model
– Uses management’s minimum desired rate-of-return
(discount rate) to compute the present value of all net
cash inflows
• Positive NPV: the project meets the minimum desired
rate of return and is eligible for further consideration
• Negative NPV: project is rejected

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 Example Comparing Two Projects Using
Net Present Value (NPV) and Internal Rate of Return (IRR) Method

Nonfinancial Criteria
• To capture larger market share
• To make it difficult for competitors to enter the
market
• To develop an enabler product
• To develop core technology that will be used in
next-generation products
• To reduce dependency on unreliable suppliers
• To prevent government intervention and
regulation

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 Checklist Selection Model
Topic Question
Strategy/alignment What specific organization does this project align with?
Driver What business problem does the project solve?
Success metrics How will we measure success?
Sponsorship Who is the project sponsor?
Risk What is the impact of not doing this project?
Risk What is the project risk to our organization?
Benefits What is the value of the project to this organization?
Organization culture Is our organization culture right for this type of project?
Approach Will we build or buy?
Schedule How long will this project take? Is the time line realistic?
Training/resources Will staff training be required?
Finance What is estimated cost of the project?
Portfolio How does the project interact with current projects?
Technology Is the technology available or new?

Project Screening Matrix

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 Applying a Selection Model
• Project Classification
– Deciding how well a strategic or operations project fits the
organization’s strategy

• Selecting a Model
– Applying a weighted scoring model to bring projects to
closer with the organization’s strategic goals
• Reduces the number of wasteful projects
• Helps identify proper goals for projects
• Helps everyone involved understand how and why a
project is selected

Project Proposals
• Sources and Solicitation of Project Proposals
– Within the organization
– Request for proposal (RFP) from external sources
(contractors and vendors)
• Ranking Proposals and Selection of Projects
– Prioritizing requires discipline, accountability,
responsibility, constraints, reduced flexibility, and loss of
power
• Managing the Portfolio
– Senior management input
– The priority team (project office) responsibilities

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Major Project
Proposal

Risk
Analysis

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 Managing the Portfolio
• Senior Management Input
– Provide guidance in selecting criteria that are aligned with
the organization’s goals
– Decide how to balance available resources among current
projects
• The Priority Team Responsibilities
– Publish the priority of every project
– Ensure that the project selection process is open and free
of power politics
– Reassess the organization’s goals and priorities
– Evaluate the progress of current projects

Project Screening
Process

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 Priority
Analysis

Project Portfolio Matrix

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 Project Portfolio Matrix Dimensions
• Bread-and-Butter Projects
– Involve evolutionary improvements to current products
and services.
• Pearls
– Represent revolutionary commercial advances using
proven technical advances.
• Oysters
– Involve technological breakthroughs with high commercial
payoffs.
• White Elephants
– Projects that at one time showed promise but are no
longer viable.

Key Terms
Implementation gap
Net present value
Payback
Organizational politics
Priority system
Priority team
Project portfolio
Project screening matrix
Sacred cow
Strategic management process

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 Chapter 2 Completed

HW# 1
[Due Saturday, May 13, 2023]

Problems: 2.1, 2.2, 2.3 & 2.5 [Pages 52 & 53]

from “Project Management: The Managerial Process” book, by:
Erik W. Larson, Clifford F. Gray, 7th Edition, McGraw-Hill/Irwin
series, 2018. [ISBN 978-1-259-66609-4]

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