Engineering Project Management (IENG300)
Chapter 2
Organization
Strategy and Project
Selection
Saeed Bamashmos
PM & Organization Strategy
• Strategy is implemented through projects. Every project should have a clear
link to the organization’s strategy.
• Project management is at the apex of strategy and operations.
• PMs need to understand strategy to:
– Make appropriate decisions and adjustments.
– Be effective project advocates.
• PMs must avoid:
– Focusing on problems or solutions that have low priority strategically.
– Focusing on immediate customers rather than the market place & value
chain.
– Overemphasizing technology as an end in and of itself.
– Trying to solve every customerissue
– Engaging in a never-ending search for perfection.
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The Strategic Management Process
• Assessing “what we are” and deciding & implementing “what we intend to
be & how we are going to get there.”
• Dimensions of strategic management
– Responding to external environment changes.
– Allocating scarce resources to improve competitive position.
• The strategic management process
– Review & define the organizational mission.
– Set long-range goals and objectives (S-M-A-R-T).
– Analyze & formulate strategies to reach objectives.
– Implement strategies through projects.
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Scenario Planning
• A structured process of thinking about future possible
environments that would have potential high impact to
disrupt business & then developing potential strategies
to compete in these altered environments. It involves:
➢ Assessing firm’s core business & industry.
➢ Potential scenarios & impact.
➢ Potential strategies.
➢ Triggers.
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Portfolio Management
• Organizational problems:
– The implementation gap: The lack of understanding and consensus of
organization strategy among top & middle managers.
– Organization politics: Exist in every organization & can have a significant
influence on which projects receive funding & high priority.
– Resource conflicts & multitasking: The multi-project environment
creates interdependency relationships of shared resources which results in
the starting, stopping and restarting projects.
• Portfolio management approach to address organizational problems:
– Classification of a project.
– Selection criteria based on classification.
– Sources of proposals.
– Evaluating proposals.
– Managing the portfolio of projects.
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Selection Criteria
• Non-financial: Projects of strategic importance to the firm.
• Financial models:
– Payback: Measures the time to recover the project investment
Payback period (yrs) = Estimated Project Cost/Annual Savings
– Net present value (NPV): Uses management’s minimum desired rate-
of-return to compute the present value of all net cash inflows.
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Examples
• Project A has an initial investment of $700,000 and projected cash
inflows of $225,000 for 5 years while Project B has an initial
investment of $400,000 and projected cash inflows of $110,000 for
5 years. Required rate of return (RoR) is 15%.
• Payback method calculations:
– Payback period (yrs) = Estimated Project Cost/Annual Savings
– Project A: Payback period = 700/225 = 3.1 & RoR = 225/700 = 32.1 %.
– Project B: Payback period = 3.6 & RoR = 27.5 %.
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Payback Method
• Payback calculations
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Examples
• NPV method calculations:
– Project A: NPV= -700 + 225/1.15 + 225/1.32 + 225/1.52
+ 225/1.75 + 225/2.01 = $54,235.
– Project B: NPV= -$31,263.
– If there is an inflation rate (IR) involved, then K = RoR + IR.
Example: RoR is 15 % & IR is 5 % then k = 0.15 + 0.05 = 0.2.
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NPV Method
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Project Screening Matrix
• Multi-Weighted Scoring Models: Use several weighted
selection criteria to evaluate project proposals.
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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 closer to 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.
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Applying a Selection Model
• Sources & Solicitation of Project Proposals
– Within the organization.
– Request for proposal (RFP) from external sources.
• Ranking Proposals & 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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Risk Analysis
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Project Screening Process
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Priority Analysis
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Project Portfolio Matrix
– Bread & Butter: Involve
evolutionary improvements to
current products & 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.
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