1. Project Selection & Portfolio Management
Dr. Huy Nguyen

2. Project Selection & Portfolio Management
• Strategic planning;
• Organizational Project Management Maturity Model (OPM3);
• Aligning porfolio management to strategic plan;
• Identifying projects;
• Developing project proposals;
• Project selection methods;
• Applying a selection model;
• Project selection;
• Contribution to project success.
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3. Strategic Planning
• Bloom’s Taxonomy of Cognitive levels:
3

4. Strategic Planning (cont.)
• Strategic Management Overview:
– Involves determining long-term objectives, predicting future trends, and
projecting the need for new products and services;
– Provides the theme and focus of the future direction for the firm:
• Respond to change;
• Allocating scarce resources.
– Requires strong links among mission, goals, objectives, strategy and
implementation.
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5. Strategic Planning (cont.)
• Strategic Management Overview:
Set “SMART” goals
Review missions
Develop strategies
Implement strategies through projects
Align strategies to goals
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6. Strategic Planning (cont.)
• Strategic Management Overview:
– Review missions by SWOT (situational) analysis.
Strengths
Threats
Weaknesses
Opportunities
Internal
External Positive Negative
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7. Strategic Planning (cont.)
• Strategic Management Overview:
– Set “SMART” goals:
Letter Major term Minor terms
S Specific Significant, Stretching, Simple
M Measurable Meaningful, Motivational, Manageable
A Achievable
Agreed, Attainable, Assignable, Appropriate, Actionable, Action-
oriented
R Relevant
Realistic, Results/Results-focused/Results-oriented, Resourced,
Rewarding
T Time-bound
Time framed, Timed, Time-based, Timeboxed, Timely, Timebound,
Time-Specific, Timetabled, Trackable
E Emotional Exciting, Evaluated, Ethical
R Recognizable Recorded, Rewarding, Reviewed
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8. Strategic Planning (cont.)
• Strategic Management Overview:
– Develop strategies by:
• Porter’s 5 Competitive Forces Analysis;
• Business Model;
• Balanced Scorecard;
• Strategy Map.
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9. Strategic Planning (cont.)
• Porter’s 5 competitive forces analysis:
– Static analysis;
– Dynamic analysis;
– Analysis of options.
Bargaining
supplier power
Bargaining
customer power
Threat of new
entrants
Threat of
substitutes
Intensity of
competition
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10. Strategic Planning (cont.)
• Applying Business Model Template:
VALUE
PROPOSITION
COST
STRUCTURE
CUSTOMER
RELATIONSHIP
TARGET
CUSTOMER
DISTRIBUTION
CHANNEL
VALUE
CONFIGURATION
CORE
CAPABILITIES
PARTNER
NETWORK
REVENUE
STREAMS
INFRASTRUCTURE CUSTOMER
OFFER
FINANCE
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11. Strategic Planning (cont.)
• Using Balanced Scorecard:
Process
efficiency
Scorecard
Customer
satisfaction
Financial
Learning and
innovation
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12. Strategic Planning (cont.)
• Developing Strategy Map:
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13. Strategic Planning (cont.)
• Strategic Management Overview:
– Align strategies to goals:
Strategy 2
Strategy 1 Strategy 3 Strategy 4
Organization Mission
Money
Customers
Efficiency and Effectiveness
Adaptability
13

14. Strategic Planning (cont.)
• Strategic Management Overview:
– Align strategies to goals:
Organization Mission
Money
Customers
Efficiency and Effectiveness
Adaptability
Strategy 2
Strategy 1 Strategy 3 Strategy 4
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15. Strategic Planning (cont.)
• Strategic Management Overview:
– Implement strategies through projects:
Organization Mission
Money
Customers
Efficiency and Effectiveness
Adaptability
Projects
Projects
Projects
Projects
Strategy 2
Strategy 1 Strategy 3 Strategy 4
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16. Strategic Planning (cont.)
• Strategic Management Overview Process:
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17. Portfolio
Project
Project
Program
Portfolio
Project
Program
Project
Project
Project
Project
Project
Project
Project
Project
Project
Organizational Project Management Maturity Model
• Approaches to project portfolio management:
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18. Organizational Project Management Maturity Model
• Approaches to project portfolio management:
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19. Organizational Project Management Maturity Model
(cont.)
• Approaches to project portfolio management:
– One portfolio or several?
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20. Organizational Project Management Maturity Model
(cont.)
• Approaches to project portfolio management:
– Categories?
Categories
Venture: Projects that transform
the business
Growth: Projects that grow
revenue or market share
Core: Projects that help run the
business
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21. Organizational Project Management Maturity Model
(cont.)
• Approaches to project portfolio management:
– Categories, for example:
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22. Organizational Project Management Maturity Model
(cont.)
• Approaches to project portfolio management:
– Benefits of project portfolio management:
• Builds discipline into project selection process;
• Links project selection to strategic metrics;
• Prioritizes project proposals across a common set of criteria, rather than on
politics or emotion;
• Allocates resources to projects that align with strategic direction;
• Balances risk across all projects.
– Problems with project portfolio management:
• Different views from senior management on what (and how) should be done;
• Competition (& effective utilisation) for resources.
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23. Organizational Project Management Maturity Model
(cont.)
• Approaches to project portfolio management:
– How to overcome the problems:
• Different views from senior management on what (and how) should be done:
 Senior management input:
– Provide guidance in selecting criteria that are aligned with the
organization’s goals;
– Decide how to balance available resources among current projects.
• Competition (& effective utilisation) for resources:
 Priority Team’s responsibilities:
– Publish the priority of every project;
– Ensure selection process is transparent;
– Re-assess the organization’s goals / priorities;
– Evaluate the progress of current projects.
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24. Organization Mission
Money
Customers
Efficiency And Effectiveness
Adaptability
Projects
Projects
Program
Projects
Projects
Projects
Program Projects
Strategy 2
Strategy 1 Strategy 3 Strategy 4
Program
Projects
Projects
Program
Aligning Portfolio Management to Strategic Plan
Short
term
Mid
term
Long
term
Projects
Projects
Projects
Projects
Projects
Projects
Projects Projects
Strategy 2
Strategy 1 Strategy 3 Strategy 4
Organization Mission
Projects
Projects
Projects
Projects
Portfolio Portfolio
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25. Aligning Portfolio Management to Strategic Plan
(cont.)
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26. Aligning Portfolio Management to Strategic Plan
(cont.)
Projects
Projects
Projects
Projects
Projects
Projects
Projects Projects
Strategy 2
Strategy 1 Strategy 3 Strategy 4
Organization Mission
Projects
Projects
Projects
Projects
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27. Identifying Projects
• Project selection process:
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28. Developing Project Proposals
• Align strategic plans:
– How to align most business units’ strategic plan with the organization’s
strategic plan?
• Solicitation of Project proposals within the organization by Request for
proposal (RFP) from external sources (contractors and vendors);
• When ranking proposals, consider:
– Discipline;
– Accountability;
– Responsibility;
– Constraints;
– Reduced flexibility;
– Loss of power.
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29. Developing Project Proposals (cont.)
• Project initiation forms:
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30. Project Selection Methods
• Rationale:
– Not all project proposals make it to initiation
– Why is every project idea not progressed?
 Limit of time, money and focus.
• Typical methods for selecting projects:
– Focusing on broad organizational needs;
– Categorizing projects;
– Financial analysis;
– Non-financial analysis using a weighted scoring model or balanced
scorecard;
– Strategy mapping.
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31. Project Selection Methods
• Categories:
1. Benefit measurement methods (Comparative approach):
• Murder board (a panel of people who try to shoot down a new project idea);
• Peer review;
• Scoring models;
• Economic models or Financial analysis.
2. Constrained optimization methods (Mathematical approach):
• Linear programming;
• Integer programming;
• Dynamic programming;
• Multi-objective programming.
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32. Project Selection Methods - Economic Models
• Present value (PV): The value today of future cash flows:
• Net present value (NPV): Project with positive & greater NPV value is better.
• Internal rate of return (IRR): Project with greater IRR value is better.
• Payback period:
– The number of time periods it takes to recover your investment in the
project before you start accumulating profit.
• Benefit-cost ratio:
– Compares the benefits to the costs of different options;
– Relates to costing projects and to determining what work should be done;
– Project with greater benefit-cost ratio value is better.
 n
r
1
FV
PV 

FV = Future value
r = Interest rate
n = Number of time period (years)
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33. Project Selection Methods - Economic Models (cont.)
• Net Present Value (NPV):
– Uses management’s minimum desired rate-of-return (discount rate) to
compute the present value of all net cash inflows:
• Positive NPV: The project meets the minimum desired rate of return and is
eligible for further consideration;
• Negative NPV: The project is rejected.
– NPV calculations:
• Determine estimated costs, benefits for the life of project and products it
produces;
• Determine discount rate (ask organization);
• Calculate the NPV;
• Note: Some organizations consider the investment year as year 0, others
consider it year 1; some organizations enter costs as negative numbers, others
do not (ask organization).
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34. Project Selection Methods - Economic Models (cont.)
• Payback model:
– Payback period (years) = Estimated project cost / Annual savings
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35. Project Selection Methods - Economic Models (cont.)
• Return on Investment (ROI):
– Calculated by subtracting project costs from the benefits and then dividing
by the costs;
– Formula:
– Higher the ROI, the better. Many organizations have a set or minimum
rate of return on investment projects.
(Total discounted benefits – Total discounted costs)
Total discounted costs
ROI =
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36. Project Selection Methods - Economic Models (cont.)
• Economic Value Added (EVA): Concerned with whether the project returns to
the company more value than it costs.
• Opportunity Cost: Given up by selecting one project over another.
• Sunk Costs: Are expended costs and should not be considered when deciding
whether to continue with a troubled project.
• Lay of Diminishing Returns: After a certain point, adding more input/resource
will not produce a proportional increase in productivity.
• Working Capital: Current assets minus current liabilities for an organization, or
amount of money the company has available to invest.
• Depreciation:
– Straight line depreciation: The same amount of depreciation is taken each
year.
– Accelerated depreciation: Depreciates faster than straight line
• Two forms:
– Double Declining Balance;
– Sum of the Years Digits.
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37. Project Selection Methods (cont.)
• Focusing on broad organizational needs:
– E.g. non-financial, but important benefits;
– Three important criteria:
• Need for the project;
• Funds available for the project;
• Will to make the project succeed.
• Categorizing projects:
– Does the project provides a response to:
• A problem;
• An opportunity;
• A directive.
– The time and date of expected completion;
– The overall priority of the project.
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38. Project Selection Methods (cont.)
• Non-financial analysis using a weighted scoring model:
– A weighted scoring model is a tool that provides a systematic process
for selecting projects based on many criteria;
– Steps in identifying a weighted scoring model:
• Identify criteria for project selection;
• Assign weights (%) to criteria add up to (100%);
• Assign scores to each criteria for each project;
• Multiply scores by weights to get total scores.
– The higher the weighted score, the better.
• Non-financial analysis using a balanced scorecard:
– Robert Kaplan and David Norton developed this approach to help select
and manage projects that align with business strategy;
– Methodology that converts an organization’s value drivers, such as
customer service, innovation, efficiency, and financial performance, to a
series of defined metrics.
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39. Project Selection Methods (cont.)
• Project scanning process to map with the organization’s strategy:
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40. Applying a Selection Model
• Project Classification:
– Deciding how well a strategic or operations project fits the organization’s
strategy.
• Selecting a model:
– Focus on competitive strategy and broad organizational needs;
– Perform net present value analysis or other financial projections;
– Use a weighted scoring model;
– Implement a balanced scorecard;
– Address problems, opportunities, and directives;
– Consider project time frame;
– Consider project priority.
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41. Project Selection
• Linking between a project and a business case;
• Business case:
– Impacts;
– Costs & benefits;
– Clearly compares alternatives;
– Objective;
– Systematic.
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42. Project Selection (cont.)
• Content of a business case:
1. Introduction / background;
2. Business objective;
3. Current situation and problem / opportunity statement;
4. Critical assumptions and constraints;
5. Analysis of options and recommendation;
6. Preliminary project requirements;
7. Budget estimate and financial analysis;
8. Schedule estimate;
9. Potential risks;
10. Exhibits.
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43. Project Selection (cont.)
• Process for developing a business case:
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44. Contribution to Project Success
• An improvement in effectiveness analysis:
53%
Challenged
16%
Success
31% Critical
Failures
1994
51%
Challenged
34%
Success
15% Critical
Failures
2002
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45. Contribution to Project Success (cont.)
• An improvement in financial analysis:
$0
$50
$100
$150
$200
$250
Wasted money as
a share of total
project spend
Billions of
dollars
1994 2005 45

46. Contribution to Project Success (cont.)
• Current and further key factors:
Smaller
projects
Better tools
Better
training
Better
Selection
Portfolio
Management
Strategic
Alignment
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47. Contribution to Project Success (cont.)
• 10 should-haves during a successful project implementation:
1. Executive support;
2. User involvement;
3. Experienced project manager;
4. Clear business objectives;
5. Minimized scope;
6. Standard software infrastructure;
7. Firm basic requirements;
8. Formal methodology;
9. Reliable estimates;
10. Other criteria, such as small milestones, proper planning, competent
staff, and ownership.
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48. Thank You
Next topic:
Project Management Process
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