That same level of structure and consideration can also be applied to selecting projects for organizations. Not every project is a good idea. In the best of cases, we might have several good projects to select from. By applying a structured approach to project selection, project managers can increase the chances of selecting potentially successful projects with the most positive organizational impacts.
The Need for Strategic Project Selection
All organizations operate under limitations. In an ideal situation, organizational leadership could initiate an unlimited number of projects in order to create a multitude of outcome benefits. Unfortunately, resources are limited. Time, financing, human resources, material, and skills are just a few of the top items on a long list of constrained organizational resources. The constraints of the organization force choices in all areas of operation, including project selection. There simply isn’t enough of what is needed to go around and undertake every potential project.
Because of these limitations, project selection needs to be approached in a structured, strategic way. The goal should be to select projects with the most benefit to the organization; the greatest efficiency for the resources used. Exactly what that means will be different for every organization. It may even change depending on a given situation. By having a number of different selection tools and techniques at our disposal, we will be in a better position to select the best projects to undertake.
Seven Techniques for Structured Project Selection
There are lots of ways to decide on which projects to select. Here are seven basic techniques for picking projects to undertake. All of the methods listed here can be used alone, or in combination with other techniques.
Sometimes, the decision on which project to select comes down to only one thing – money. When this is the case, projects should be selected based on which option creates the most financial benefit for the organization.
Fortunately, there are several various financial analysis tools that can be used to determine which project provides the most benefit. Two of the most common are Return on Investment (ROI) and Payback Period. ROI is a direct measure of the return of capital produced by a project relative to the amount of capital spent on or invested in a project. ROI is calculated with the following equation:
ROI = (Gain from Investment – Investment Cost) / Investment Cost
The higher the return on investment, the more desirable the project.
The payback period of a project examines how long a project will take in order to recover the amount of capital invested. It asks the question; how long will it take for a project to generate enough income to pay for itself? The simplest calculation for payback period is to divide the amount of capital invested in the project by the amount generated (or saved) by the project per period of time (months, years, etc.). Using payback period, the project with the shortest time to recover invested capital should be selected.
Additional examinations covering a wide range of complexities can be used to select among multiple project options. In the majority of cases, project selection comes down to the idea that projects selected have an opportunity cost. The capital invested in a project could also be invested in other projects. Deciding which opportunity to select, based on financial analysis alone, should provide the best possible outcome based on the specific financial needs and objectives of the organization.
Projects can be a powerful tool for achieving the strategic objectives of an organization. When an organization has clearly defined strategic objectives, projects should be selected to help further, or deepen, that strategy.
In doing so, projects should be selected based on their ability to support organizational strategy. For example, if an organization has stated their mission is to provide superior customer service, projects that enhance customer service should be designed and selected. If an organization is focused on innovation as a source of competitive advantage, research and development projects might be the best options to pick.
There are instances in organizations where conditions can be improved or situations resolved through the implementation of particular projects. This is the concept of using projects to solve organizational problems. When this is the case, projects are selected to remove hindrance and impediments to smooth, efficient, organizational operations.
Taking Advantage of Opportunities
Smart managers are always on the lookout for new opportunities to take advantage of. Opportunities can be identified to further a number of different organizational goals, from increasing profits to entering new markets or developing new products and services. But identified opportunities rarely take advantage of themselves. In many cases, projects can be designed, selected, and implemented specifically to take advantage of opportunities identified by organizational leadership.
In a dynamic business environment, the one constant is change. Industry, regulatory, and market conditions often create changing requirements. When this is the case, new organizational projects are sometimes the best way to go about fulfilling new requirements.
A recent example was the implementation of the European data protection laws (GDPR) that went into effect in 2018. In order to achieve compliance, organizations had to undertake projects of all types, such as enacting data security procedures and planning employee training sessions.
If deciding ‘what’ is a question of ‘when’, then the time frame for a project should be the main point of consideration in selection. This can be considered in two ways; time of implementation and total project life cycle time.
Time of implementation looks at when significant portions of the project are to be implemented. For example, are the organizational resources required for a project available when the project is planned for. Feasibility is another consideration; a local sports organization in Austria would be better off implementing a project to plan a triathlon to take place in summer, rather than in winter.
Total project life cycle time considers the total time of the project from selection and initiation to final closing and shut-down. This type of time frame is considered if there is a limited period of time available for the undertaking of a project.
Weighted Scoring Model (Decision Matrix)
Weighted scoring models are useful when the decision on project selection comes down to not one, but several factors. In this case, a weighted scoring model (AKA Decision Matrix) can be the best tool to examine, rate, and select among multiple options.
A weighted scoring model is developed by determining which factors are important to an organization in project selection. Those factors are then assigned a relative level of importance or value (weight). Then, the factors are examined and rated for each available project option under consideration, with the rating multiplied by the relative weight of the factor. The project with the highest total score is the one selected. The illustration below provides an example.
As project managers, it’s not always the case that we are able to select our own projects to work on. But when we can, either in the capacity of project managers or business leaders, the strategic selection of projects can be an important tool to further the success of all types of organizations. This is especially true as the trend continues in the direction of projectized models of organizational operations.
No list of selection methods can be complete or all-inclusive; not even a single best method exists. Still, the seven methods listed here provide a good start. Even when conditions and demands are different for various organizations, project selection should be done with the same level of consideration that goes into managing them.