Project generation and selection

PROJECT GENERATION AND SELECTION UNIT 4. SESSION 4 MIGUEL SANCHEZ ARAUJO BBA222. PROJECT MANAGEMENT 1 SESSION OBJECTIVES  To understand how projects originate  To understand the process of project generation  To understand the project selection process  To assess and evaluate projects both at high level and in detail  To provide students with a tool for prioritizing and selecting project BBA222. PROJECT MANAGEMENT 2 1. Project generation 2. Project selection 3. The project assessment process 4. Project selection methods SESSION CONTENT BBA222. PROJECT MANAGEMENT 3 PROJECT GENERATION BBA222. PROJECT MANAGEMENT 4 WHAT DO BUSINESSES WANT?  Increase sales  Operating more efficiently TO DO SO, COMPANIES NEEDS: PROJECTS  Saving time or money  Increase quality  Increase profit  Sustainable Growth  Social awareness BBA222. PROJECT MANAGEMENT 5 HOW DO PROJECTS COME ABOUT? PROJECT CONCEPT OBJECTIVES PROJECT STARTS SCOPE PROJECT GENERATORS BRAINSTORMING BUSINESS NEEDS MARKET NEEDS OTHER REQUIREMENTS COST PROJECT CHARTER TIME VIABLE? FEASIBLE? BBA222. PROJECT MANAGEMENT PROJECT APPROVAL 6 Business Needs or Strategic Opportunities  Improving efficiency, reducing costs… Market Demand  Changes in economy, in supply and demand cycles… Customer Request  Specific software, custom made products… Legal Requirement  Product labelling, CO2 emissions… Technological Advance  Creating new needs… PROJECT GENERATORS Social Need  Public awareness campaigns, ecological needs… BBA222. PROJECT MANAGEMENT 7 PROJECT SELECTION BBA222. PROJECT MANAGEMENT 8  Organizations want to choose projects with the greatest potential for revenue (both profit and non-profit organizations)  Many organizations do not have a formal selection process, but a senior executive says “Do it”  More success when projects have been selected through a selection process after reviewing project concepts documents PROJECT SELECTION PROCESS  Selection criteria methods include qualitative (scoring models) and quantitative (financial reviews) BBA222. PROJECT MANAGEMENT 9 PROJECT SELECTION PROCESS Information gathering and analysis that enables to judge both qualitatively and quantitatively the advantages and disadvantages of allocating resources to one particular initiative or project BBA222. PROJECT MANAGEMENT 10 PROJECT SELECTION PROCESS BBA222. PROJECT MANAGEMENT 11 THE PROJECT ASSESSMENT PROCESS BBA222. PROJECT MANAGEMENT 12 Process by which different projects are assessed and evaluated Objective: selection of projects to carry out THE PROJECT ASSESSMENT PROCESS 1. Pre-assessment: high level assessment of project concepts 2. Assessment: more detailed studies BBA222. PROJECT MANAGEMENT 13 PRE-ASSESSMENT & ASSESSMENT 1. PRE-ASSESSMENT 2. ASSESSMENT Project Concept BBA222. PROJECT MANAGEMENT Project Charter 14 INITIAL HIGH-LEVEL ASSESSMENT OF PROJECT CONCEPTS 1. Identification of business needs 2. Identification of ideas, alternatives and concepts 3. High level evaluation: a) Profile assessment 1. PRE-ASSESSMENT b) Feasibility BBA222. PROJECT MANAGEMENT 15 1. PROFILE ASSESSMENT a. b. c. Based on common sense and experience High level estimations on income and costs Includes the “no project” assessment 2. FEASIBILITY a. 1. PRE-ASSESSMENT b. Based on secondary sources of information to establish other variables (market, investment capacity, financial resources, etc) Objective: establish whether to do more detailed studies BBA222. PROJECT MANAGEMENT 16 1. PRE-ASSESSMENT PROJECT PRE - ASSESSMENT Profile Assessment: Feasibility: Approved Idea: YES NO Justification: BBA222. PROJECT MANAGEMENT 17 1. PREPARATION – information gathering 2. EVALUATION – objective to assess the viability of the project 5 STUDIES THAT MUST BE CARRIED OUT 2. ASSESSMENT a. b. c. d. e. Technical Market study Legal Organizational Financial BBA222. PROJECT MANAGEMENT 18 STUDIES FOR PROJECT ASSESSMENT  Objectives: each one is to provide the necessary information to evaluate the financial viability of the investment  The detail and depth achieved in each of these studies will depend on the project characteristics.  If any of the following studies reaches a negative conclusion, the project will not be carried out the way it’s conceived BBA222. PROJECT MANAGEMENT 19 STUDIES FOR PROJECT ASSESSMENT  MARKET STUDY: determines whether the market is sensitive to the product or service delivered by the project  TECHNICAL STUDY: determines the physical and material requirements, conditions and alternatives of producing the product or service  LEGAL STUDY: determines the legal restrictions (ex. limitations on location, transport, taxes, use)  ORGANIZATIONAL STUDY: determines the capabilities and capacity of the organization to carry out the project  FINANCIAL STUDY: determines financial profitability of the investment BBA222. PROJECT MANAGEMENT 20 STUDIES FOR PROJECT ASSESSMENT  Are they all necessary?  Which one is more important?  If project is financially viable, should it always be given the go ahead? BBA222. PROJECT MANAGEMENT 21 Objective: to determine the market sensibility to the proposed project outcomes  Analysis of supply and demand  Determines price of products/services (if price too high, demand will decrease, affecting the project income)  Determines strategy of placement and distribution (affects project costs)  Determines marketing strategy (affects project costs and cash flow)  Determines sales policy  Analysis of competitors MARKET STUDY  All these decisions will affect investment, costs and income of the project BBA222. PROJECT MANAGEMENT 22 Objective: gather information to quantify the amount of investment required  Choice of alternatives from a technical point of view might be different to the one based on the financial assessment  Establishes which production process will optimise available resources  Determines investment and resource requirements (labour and materials), both quantitative and qualitative (how many and to what level of specialisation and knowledge) TECHNICAL STUDY  Also will determine other requirements (spatial), maintenance, repairs and replacement  Important to consider size and location of alternatives BBA222. PROJECT MANAGEMENT 23 Objective: establish organizational and legal requirements and possible constraints  Determines organizational structure, personnel qualifications and skills  Determines administrative requirements (specialized software)  Determines outsourcing alternatives  Determine the influence that administrative processes have on investment and costs of projects LEGAL AND ORGANIZATIONAL STUDY  Legal aspects can influence on location (increased transport costs), taxes (decreased of net profit), requirements of permits and licenses (increased costs) BBA222. PROJECT MANAGEMENT 24 Objective: to determine the market sensibility to the proposed project outcomes  Establish current baseline against which information will be analyzed  Determine investment requirements, financing needs and sources, costs and income, cash flow needs  Evaluation is measured based on different criteria that complement each other FINANCIAL STUDY BBA222. PROJECT MANAGEMENT 25 Once the quantitative evaluation of the project is completed, we must take into consideration two further studies:  Sensibility analysis  Incorporates the risk factor  No assurance of all information gathered and analyzed  Analysis and interpretation of results OVERALL EVALUATION  Qualitative analysis  Includes all those elements not quantifiable that can influence the decision accepting or rejecting the project BBA222. PROJECT MANAGEMENT 26 PROJECT SELECTION METHODS BBA222. PROJECT MANAGEMENT 27 PROJECT SELECTION METHODS QUALITATIVE QUANTITATIVE (Scoring methods) (financial calculations) • Questionnaires, checklists • Selection / Priorization Matrix • • • • • Payback period Discounted cash flow Cost-benefit analysis Internal rate of return Return of investment BBA222. PROJECT MANAGEMENT 28 Usually, financial calculations carry the most weight Scoring models use models that score project goals against a pre-determined criteria Combination of financial calculations and scoring methods gives a clearer picture on what project to choose These methods are also used to prioritize projects. Financial calculations and scores can be used to rank projects in the order of most profitable, highest return or greatest potential for market penetration PROJECT SELECTION METHODS Neither of these methods are indicators of project success Success comes from good project planning and methodical management processes BBA222. PROJECT MANAGEMENT 29 Besides scores and financial calculations, other factors should be considered 1. STRATEGIC PLANS All projects should be aligned with the organization's strategy. For example, small pharmaceutical company that researches and develops medications for blood disease. Even if a project to develop high-fever medication makes market sense, the project is not aligned with the company’s focus 2. RISKS AND IMPACTS Financial, bad publicity, product flops… 3. CONSTRAINTS OTHER SELECTION CRITERIA Pre-established organizational restrictions (no projects in excess of a budget or time period, pre-established limits on the resources) BBA222. PROJECT MANAGEMENT 30 5 STEPS FOR A PROJECT SELECTION USING A QUALITATIVE METHOD 1. Define evaluation criteria 2. Establish weight percentage 3. Define evaluation scale 4. Evaluate each criteria for each project 5. Calculate the individual score and the final score BBA222. PROJECT MANAGEMENT 31  Define the criteria you will use to evaluate projects.  They must be criteria common to all of them and that allow a qualitative assessment to be made quickly  The criteria must be well defined. They must be clear and concise. They must not lead to misinterpretations  EXAMPLES: DEFINING EVALUATION CRITERIA  Business problem appropriately addressed or resolved  Customer satisfaction easily achieved  Profit potential  Marketability  Easily produced or supported BBA222. PROJECT MANAGEMENT 32  Weights should be assigned to the criteria according to the goals of the company DEFINING WEIGHT PERCENTAGE  The criteria with the greatest importance for the company and with the greatest impact on the fulfillment of the strategic objectives of the company should carry more weight BBA222. PROJECT MANAGEMENT 33  A rating scale is a series of numbers by which the criteria used to evaluate the projects that a company can carry out are scored, so the most appropriate one is chosen DEFINING EVALUATION SCALE  There are various assessment scales, the most used are:  1-5  1-10  1-100 BBA222. PROJECT MANAGEMENT 34  Based on the rating scale you have chosen, you must score each criteria for each project  It is advisable to score with the highest number on the scale the project that best meets the criteria being analyzed and with the lowest the project that meets the least  The rest of the projects are scored with the remaining numbers EVALUATING EACH CRITERIA  If two projects are on an equal footing before a criteria, it is possible (and recommended) to rate them in the same way BBA222. PROJECT MANAGEMENT 35  To calculate the value of each criteria in each project, you only have to multiply the percentage of the criteria by the points that have been assigned in each case CALCULATING THE INDIVIDUAL SCORE AND THE FINAL SCORE  The total value of the project is calculated by adding the individual values of each criteria BBA222. PROJECT MANAGEMENT 36 PROJECT SELECTION USING QUALITATIVE METHOD PROJECT 1 CRITERIA % Criteria 1 25% Criteria 2 25% Criteria 3 20% Criteria 4 15% Criteria 5 15% Points Score PROJECT 2 Points Score PROJECT 3 Points Score PROJECT X Points Score TOTAL SCORE: Score = Points x Percentage BBA222. PROJECT MANAGEMENT 37 ABOUT THE RESULTS…  What happens if two or more projects obtain the same or similar final value?  In this case, those projects must be evaluated again choosing new and more specific or detailed criteria. This means, a second round of evaluation must be carried out  What happens if a project stands out excessively from the rest (with very high or low scores)?  Maybe something during the assessment (qualitative method) gone wrong. Remember that the projects have already gone through a pre-assessment BBA222. PROJECT MANAGEMENT 38 BBA222. PROJECT MANAGEMENT 39