5 Project Selection Methods to Structure the Project Management Office

July 6, 2018 By

Identifying viable projects that your teams can undertake and invest their efforts wholly into is a project in itself. While the selection of projects can be a time consuming process, it’s a necessary exercise considering the number of large and complex projects that are undertaken only to be abandoned in later stages. Worse, reasons for not going ahead with a project aren’t described in detail to inform future project managers and their teams of what to look out for.

Global enterprises have set aside a dedicated space for a Project Management Office to counter this, ensuring that only those projects that align strategically with business-wide objectives get the green signal.

The business case you present to your stakeholders should document the methods used in the selection of projects. After all , once you identify and analyze the entire list of opportunities, it all boils down to picking the ones where the benefits far outweigh potential risks. This is an area the PMO can help you out with because it not only initiates the necessary risk management protocols but also provides decision support.

A Manager explaining the project selection methods to his team members

What Project Selection Criterion Merits Consideration?

The Project Steering committee sits at the highest level to provide guidance on objectives, reconcile budgetary allocations, prioritize work and resolve issues. As such, internal and external stakeholders forming this committee/board play a pivotal role in influencing the project planning and execution strategy. After all, their expertise in a particular knowledge area lets them field questions project managers pose concerning the project roadmap. While the actual implementation is carried out by a project manager and project teams, PMOs contract the project manager to feed project status reports to the steering committee based on the action items documented on previous minutes. The project selection criteria worth remembering here are:

 1. The 80/20 rule:

The Pareto law lets you choose 20% of projects that can effectively respond to 80% of threats or opportunities. In other words, it lets you take up opportunities immediately, positioning you to dominate the market by being the first to capture consumer needs.

Conversely, it lets you identify and contain risks immediately by deploying the appropriate controls. This way , neither will the same risks spill over to projects running in parallel nor make a repeat entrance in future projects. By standardizing your risk register, you’re saved the task of assessing the impacts if you already know what’s coming and what measures have proven to work in the past.

2. Strategic Fit:

Given the number of stakeholders verbally expressing their projections for achieving a strategic fit between potential opportunities and enterprise-wide objectives, a thorough understanding of the organization’s mission statement and business goals lets you deploy your core resources and capabilities in the right areas.

While all opportunities look good on paper, not all can be implemented. Your strategic plan should ideally compare the opportunity costs against true feasibility in taking in project commitments, letting you instantly deselect projects that dilute the organizational focus.

3. Question Project Outcomes:

A quick hack to the selection of projects from an expansive pool of opportunities is to ask the following outcome-centric questions:

What outcomes intrinsically plug in your objectives?

Why is it right for your enterprise?

How will it add value?

These questions let you make decision trade offs against realistic expectations. Unclear project responsibilities add to the time, scoping and budgeting constraints, making it difficult for your staff to guarantee project delivery while racing against unrealistic time frames. Moreover, it lets you restore the balance between competing interests and funnel the right knowledge upgrades and project expertise in line with strategic direction.

4. Assess Core Competencies:

Your competencies set you apart, especially in times of market uncertainties. Mapping your competencies not only lets you identify desirable traits but also lets you acquire a sufficient quantity of the right ones ahead of the curve. When you base your projects on core competencies, you can select projects that utilize your strengths and are propelled towards value proposition. Consequently, your staff can be oriented around the right competencies and estimate their own effort investments against the practical application of these competencies.

5. Resource Capacity Building:

Building a capacity inventory lays the groundwork for establishing a resource sufficiency from the very beginning. It prevents you from overcommitting to projects by giving you insight into utilization rates, where and how effort investments took place and how teams fared in comparison to previous project delivery.

Without the right skill-matches in place already, you risk overloading existing resources with tasks far beyond their current capabilities. Without the requisite training schemes and non-BAU support, their lack of knowledge leads to project briefs being misinterpreted, hindering the learning curve.

When you overlook the quantity of qualified staff on the bench, you end up exceeding your resourcing spend by outsourcing project components that could have easily been worked on by in-house specialists. A deviation in budgetary disbursements for resource and equipment allocations arises, causing you to pass up or entirely miss the right opportunities.

How Do You Justify Your Project Selection Methods?

Additionally, PMOs finalize the selection of projects with 2 financial instruments that maximize profitability. These are further classified by the size and the scale of projects undertaken, which are:

1. Benefits Measurement:

This route is best suited to simple and structured projects that can be easily dismantled should demands change. Project selection models that fall under this bracket include

  • Cost to Benefit Ratio: This simple ratio weighs out the costs of a project investment against returnable value post its successful completion. Projects with a lower cost to benefit ratio (or alternately, higher benefits to cost)are generally picked.
  • Economic Value Added Model: This is the net operating profit after deducting your capital expenditure. It captures quantifiable benefits of a project post completion and points you to future projects with a high EVA.
  • Payback Period: This refers to the time taken to recover the expenses locked into a particular project. Those projects that give returnable value quickly have a proportionately low payback period.
  • Scoring Model: This method lets you objectively assess the components most important to different projects. Be it a new marketing strategy, customer satisfaction or process innovation, scoring models let you prioritize projects that score high on the project selection criteria you deem necessary, making it a highly customizable technique.
  • Opportunity Costs: Prior to selecting projects, the reasoning for picking them is presented by their cost implications. If the project is expensive, for example, but produces a sustainable outcome, it can be considered an opportunity worth exploring.
  • Discounted Cash Flow: this method factors in the present exchange value of currency and inflation rates while incorporating the time value of money.
  • Net Present Value: This technique is presented a variance between the current value of a project’s internal and external cash flow. It makes use of the Discounted Cash Flow to let you assess the sinusoidal wave of profits and losses following project completion.
  • Internal Rate of Return: The interest rate at which your NPV equals 0 is the rate at which the effects of the cash inflow/outflow are essentially evened out.

 

2. Constrained Optimization:

As a golden rule of thumb, constrained optimization is applied to complex and largely unstructured projects. It approaches project selection mathematically with 4 methods, these being:

  • Linear Programming: This approach brings down the total cost of the project by crashing project activities i.e reducing the total time taken for project delivery.
  • Integer Programming: This method quantifies products based on integer values rather than floating values.
  • Dynamic Programming: As the name suggests, dynamic programming addresses a complex problem by sequentially decomposing it into simpler solutions. The more the number of simplified components in a project, the better are its chances for selection owing to the relative ease with which tasks can be taken up.
  • Multiple Objective Programming: This approach focuses on making a decision for a number of solutions using an If..Else statement. Put simply, if a single solution cannot optimize several problems, it points to a conflict which risks eroding the value of other problems. Letting it remain as is increases the probability of the same problems seeping into future projects, thus letting you determine which opportunities are likely to carry these problems forward.

It’s worth mentioning that the 5th and 6th versions of the PMBOK guide have scrapped the financial measurements of the project selection models discussed above, choosing to focus purely on strategic alignment instead. That being said, weaving the operational and financial methods of selecting projects into your business strategy lets your PMO make informed decisions with regards to the complete approval of the project portfolio!

Fill us in on your experience using the 5 methods listed here and tell us if it simplified the selection of projects for you!

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Namratha Mohan

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