Project Selection: Doing the Right Thing Chapter 3 Project Selection: Doing the Right Thing McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

Chapter Learning Objectives When you have mastered the material in this chapter, you should be able to: Use the project selection funnel as a strategic tool. Establish project goals built on underlying problems, opportunities, and mandates. Generate and evaluate options for achieving project goals using financial analysis, as well as team-based methods such as advantages–disadvantages, factor rating, force- field analysis, SWOT analysis, and Pareto Priority Index. Create a formal or informal business case for a project. Build real-options concepts into a multistage project plan. Apply a team-based approach to assess a project portfolio. 3-2

Project Selection: Doing the Right Thing “NASA spent millions of dollars developing a pen that could write in zero gravity conditions. In contrast, spending not a single ruble, the Soviets provided their cosmonauts with pencils that functioned very effectively in zero gravity.” Mykola Komarevskyy 3-3

Exhibit 3.1 The Project Selection Funnel 3-4

The Business Case A document that presents the justification for the project and recommends whether or not it should proceed to the initiation stage. The business case is usually reviewed by the senior decision makers within the organization. Key business case elements include: executive summary, project drivers, underlying causes, goal, options for achieving the goal, assessment of options, conclusion. Individuals and organizations can use the business case elements formally or informally. 3-5

Exhibit 3.2 Components of the Business Case 3-6

Exhibit 3.2 Components of the Business Case 3-7

Project Drivers: Problems, Opportunities and Mandates Problem – a gap between actual conditions and desired conditions. Opportunity – a gap between current conditions and a desired future state. Mandate – a requirement imposed by higher levels of management or external entities or factors (e.g., a governing board, or legislation). 3-8

Exhibit 3.3 Problem Statement Components and Examples 3-9

Exhibit 3.4 Opportunity Statement Components 3-10

Causes of Problems and Opportunities Once a business case team has a clear understanding of a potential project’s driving problem, opportunity, or mandate, its members should consider the causes that underlie it. Types of causal configurations Constellation of interacting forces: A situation where one underlying project cause affects the others, magnifying the effects that any one had on its own. . Reciprocal cause-effect relationships or positive feedback loops: A causal pattern where one or more causes feed into each other. This creates a positive feedback loop that can create a potentially unending cause-effect loop if the system has no self- correcting mechanism. 3-11

Exhibit 3.5 Reciprocal Cause-Effect Relationship 3-12

Team-Based Tools for Causal Analysis Fishbone Diagrams Affinity Exercises Influence Diagrams 3-13

Exhibit 3.6 Fishbone Diagram for Emerald Sports Late-Delivery Problem 3-14

Appendix: Sample Business Case Contents Fishbone Diagram for Project Drivers 3-15

Exhibit 3.7 Mind Map of Possible Approaches for Solving the Late-Delivery Problem at Emerald Sports 3-16

Options for Assessing Projects and Project Options Financial Analysis List of Advantages and Disadvantages Factor Rating Force-Field Analysis Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis Pareto Priority Index (PPI) Real Options and Decision Trees 3-17

Exhibit 3.8 Options for Assessing Projects and Project Options 3-18

Exhibit 3.8 Options for Assessing Projects and Project Options 3-19

Exhibit 3.9 Examples of Advantages and Disadvantages Associated with Building a New Distribution Center (DC) in Eastern Europe 3-20

Exhibit 3.10 Factor Rating Example 3-21

Exhibit 3.11 Force-Field Analysis for Assisting Emerald Sports’ Current Transportation Provider with Process Improvement 3-22

Exhibit 3.12 Dimensions for Discussion in a SWOT Analysis 3-23

Exhibit 3.13 PPI Analysis for Process Improvement Projects at Avionics Company 3-24

Exhibit 3.14 Decision Tree Adapted for Depicting Real-Options Dynamic Scenario Planning 3-25

Box 3.3 Eisner’s Gong Show at Disney During his tenure as Disney CEO, Michael Eisner applied somewhat unconventional methods for project selection, one of which was “gong show.” “Once a week, we’d invite everybody to come to a conference room, and anyone could offer up an idea or two and, right on the spot, people would react. We loved the idea of big, unruly, disruptive meetings; that’s what the gong show was all about. The Little Mermaid came out of a gong show, and so did Pocahontas. Lots of ideas came out of those meetings, and people had a great time.” Thus, with all we have said about the value of a systematic selection process, we must recognize that, in practice, there are other, less formal approaches that can work effectively. 3-26

Project Portfolios and Portfolio Maps The collection of projects underway in an organization is the project portfolio. Before making stand-alone decisions about which projects to select or drop, organizations can map their existing (and future) portfolios as a way of seeing the bigger picture. Organizations should select a conceptual mapping model that is appropriate to the kinds of projects under consideration. 3-27

Exhibit 3.15 Project Portfolio Map Based on Financial Outcomes and Risk To achieve strategic balance, an organization should have a mix of projects in the portfolio. 3-28

Exhibit 3.16 Sample Portfolio Matrix 3-29

Chapter Summary It is important to select the right project. All the project management tools in the world cannot salvage a project if it is not appropriate for the organization to undertake it. Project managers seldom choose the projects the organization adopts, but need to understand the logic of the selection process to ask the right questions and make adjustments, as needed. The business case approach provides a useful framework for guiding project selection decisions. Tools for project assessment include financial methods, lists of advantages and disadvantages, factor rating, force-field analysis, SWOT analysis, and PPI. Project selection should not be a onetime decision; early phases often produce information the team can use to decide on courses of action for later phases. Real-options concepts offer useful frameworks for looking at projects along a dynamic timeline. Individual projects are not islands unto themselves and should be viewed as part of a larger portfolio. Upper-level managers will benefit from having a mechanism whereby they periodically assess portfolio maps and make decisions about project continuation, modification, and resource allocation. 3-30