Project Selection Models
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Transcript of Project Selection Models
Project Selection Models
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Strategic Managementand Project Selection
Maturity of Project ManagementCriteria for PS ModelsNature of PS ModelsTypes of PS ModelsUncertainty Analysis and Risk ManagementInformation Base for PS ModelsProject Portfolio Process (PPP)Project Proposal
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Overview of PS ProcessProject Management Office (PMO): Aligning corporate needs and project goalsProject selection: Choose candidate projects using evaluation criteriaDealing with uncertainty: Risk analysisStrategically selecting best projects: Project Portfolio Process (PPP)Locking up the deal: Writing a project proposal
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Project Management Maturity Levels
Ad-hoc (essentially disorganized)Abbreviated (some processes exist)Organized (standardized processes)Managed (measured processes)Adaptive (continuous improvement)
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PS Models
Idealized view of realityRepresenting the STRUCTURE of the problem, not the detailDeterministic or stochastic
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Criteria for Project Selection Models (Soulder)
Realism (technical-, resource-, market-risk)Capability (adequately sophisticated)Flexibility (valid results over large domain)Ease of Use (no expert needed to run model)Cost (much less than project benefit)Easy Computerization (use standard software)
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Nature of PS models: Caveats
Project decisions are made by PM --- NOT by PS model!
A PS model APPROXIMATES, but does NOT DUPLICATE reality!
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Nature of PS Models: Methodology
Start with detailed list of firm’s goals
Create list of project evaluation factors (PEF’s)Weigh every element in PEF list
Compute an overall score for project based on weighted PEF’sSelect project that has the closest alignment with firm’s goals
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Project Evaluation Factors (PEFs)
Production FactorsMarketing FactorsFinancial FactorsPersonnel FactorsAdministrative and Misc. Factors
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Types of PS Models: Nonnumeric
Sacred CowOperating NecessityCompetitive NecessityProduct Line ExtensionComparative Benefit Model
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Numeric PS Models:
Profit/ProfitabilityPayback Period (PB)Average Rate of ReturnDiscounted Cash Flow (NPV)Internal Rate of ReturnProfitability IndexOther Profitability Models
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Numeric PS Models: Scoring
Unweighted 0-1 Factor ModelUnweighted Factor Scoring ModelWeighted Factor Scoring ModelConstrained Weighted Factor Scoring Model
S = ∑(x)
S = ∑(s)
S = ∑(s·w)
S = ∑(s·w) ∏(c)
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Choosing the PS Model
Dependent on wishes and philosophy of management80% of Fortune 500 firms choose “nonnumeric” PS modelsFirms with outside funding often choose scoring PS modelsFirms without outside funding often choose profit / profitability PS models
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Management of Risk: Terminology
Risk: Decision based on complete information about the probability of each possible outcome.
Uncertainty: Decision based on incomplete or insufficient data.
Game: Decision based under conditions of conflict.
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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
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Project Portfolio Process (PPP)
Step 1: Establish a Project CouncilStep 2: Identify project categories & criteriaStep 3: Collect project dataStep 4: Assess resource availabilityStep 5: Reduce project and criteria SetStep 6: Prioritize projects within categoriesStep 7: Prioritize the projects within categoriesStep 8: Implement the Process
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Step 1: Establish a Project Council
Includes:Senior ManagementProject Managers of major projectsRelevant general managersThose who identify key risksThose who could derail PPP later
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Step 2: Identify Project Categories and Criteria
Derivative Projects
Platform Projects
Breakthrough Projects
R & D Projects
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Step 3: Collect Project Data
Use “activity based costs” Verify all dataInclude timing for benefits and resource needsDocument assumptions for future checking
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Step 4: Access Resource Availability
Access availability of Internal and External Resources by: Type Department Timing: can vary 100% over project
life cycle
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Step 5: Reduce the Project and Criteria Set
Narrow down existing projects required competence exists in organization Market for offering Profitability Risk Potential partner to assist with project Right resources available at the right times Good technological fit with organization Uses organization’s strengths Synergetic with other important projects Slipped in desirability
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Step 6: Prioritize Projects within Categories
Rank projects within each categoryMeasure by Risk Development of new knowledge
Consider benefits firstConsider cost second
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Step 7: Select the projects to be Funded and Held in Reserve
Determine the mix of projects across various categories and time periods
Leave 10-15 % of organization’s resources free
Focus on committing to FEWER projects
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Step 8: Implement the Process
Make results of the PPP widely known
Senior management must fully fund
Process will be repeated on a regular basis
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Project Proposal: Content
Cover letterExecutive summaryDescription and past experience of project teamNature of technical problem to be solvedHow to approach solution of technical problemPlan for implementation of projectPlan for logistic support and administration
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Project Proposal: Cover Letter & Executive Summary
Compose a cover letter as key marketing instrument
Explain fundamental nature and general benefits of project
Minimally technical language
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Project Proposal: Past Experience of Project Team
List all key project personnel with titles and qualifications
Include full resume of each principal
Provide all pertinent references
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Project Proposal: Technical
Approach
General description of problem to be addressed or project to be undertaken
Major subsystems of problem or project
Methodology of solving the problem
Special client requirements
Test and inspection procedures
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Project Proposal:Implementation
Plan
Estimates of time, cost and materials for each subsystem and the whole project
Establish major milestones to break project into phases
List equipment, overhead and administrative cost
Develop contingency plans (including slack time)
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Project Proposal: Plan for Administration and Logistic Support
Control over subcontractors
Nature and Timing of all reports (progress, budget, audits)Change management
Termination Procedures
“Touch of class” capabilities (artist’s renderings, meeting facilities, video conferencing, computer graphics)