Most organisations have several projects lined up for execution at any point in time. But not all these can be done at a time due to resource availability limitations. Time, money and people must be essentially allocated for each project, and they are never in excess in any firm. For this reason, companies must decide which projects they must take up and which ones to be rejected or keep for later. Project selection is a very important process because this ensures the establishment gets the best returns from the project.
Project selection starts with project prioritisation. It is a process where the company evaluates various projects for their merit. The main considerations are that the projects must align with the firm’s objectives and help maximise its performance. The scoring is done in such a way as to line the projects in the order in which firms will take them up for execution. This method of prioritising the projects is crucial for proper project portfolio management. The top management usually makes project selection, but the project manager’s expertise is very important in this process.
Those aspiring to become project managers will benefit greatly from learning about project selection. One can understand more about it in the Advanced Certificate course in Operations, Supply Chain and Project Management. You will find the course on our platform; more details are available on the website.
The PM’s Role In Project Selection
Project managers are crucial in selecting suitable projects for an establishment. The person’s experience comes in handy when prioritising the various proposals and finalising the one that is most beneficial for the company. The PM has immense knowledge about the resource requirements for any type of undertaking. Project managers are also very well aware of the risks involved in a project. They will certainly know the strengths and weaknesses of the resources the company has. This is why their role is critical in project selection.
The project managers also know how the people in a firm work and what capabilities they possess. This helps greatly in selecting the right project to use their skills and reap maximum benefits. These professionals act as a liaison between the executives and the project teams. It is also possible for them to highlight the expertise of different teams and what they are capable of handling. They can greatly influence the executives’ decisions in project selection and must be very honest and impartial in their suggestions.
Important Steps In Project Selection
The first step is ensuring the project suits the company’s overall business strategy. The PM and the stakeholders must together analyse what goals of the firm the project help to fulfil. Some projects support meeting multiple objectives of an establishment. The team must also analyse whether the work will work towards short-term or long-term goals. The next step in project selection is the analysis of the company environment. One needs to look at the strengths and weaknesses of the firm before finalising an undertaking.
Resources are important for every project. When prioritising the projects, it is very important to see how they will affect the firm’s resources. Are there enough resources to undertake the work immediately? Will this project help use the company’s available staff, budget and machinery? Is the organisation lacking in resources? If so, what must be acquired to complete the work successfully? Such questions will help understand how a firm can execute a project and how much it will benefit the organisation. These steps are essential in project selection to ensure that it gives the desired returns.
Methods Of Project Selection
Companies use different methods for finalising the most beneficial projects. The choice of method depends on what goals the firm wants to achieve with the project.
Cost Benefit Analysis
The firm compares the benefits earned by executing the project to the cost involved in this method. The benefits need not always be financial. By investing in a new branch, the organisation may not earn revenues immediately. But it will help spread the brand name and make way for future profits. It may also help in bringing new customer segments to the brand. So, all project benefits are analysed against the cost involved. The firm also inspects if it can afford the investment immediately while using this project selection method.
This is another method used regularly where the time it takes to recover the cost is given more consideration. Looking at projects with a shorter turnaround period for companies undertaking multiple projects simultaneously may be beneficial. But it is also crucial to consider other factors like the cost and resources that the firm may need to complete the work in a short time. In this method, only the time taken to get the investment back is considered without taking into account the risks involved.
Discounted Cash Flow Analysis
In this method, it is not just the time taken to get back the investment that is considered. The reduction in the value of money is also taken into account. The money that a firm earns today is more valuable than what is earned tomorrow because it has already invested the amount. When this method is used, the interest that can be earned if the money is brought back soon is also considered. In such a project selection method, it is important to estimate the cash flow and the ending value of the project accurately.
Net Present Value
This is the difference between the cost of the project and the money it brings back (ROI). A higher NPV is always preferable. This method of prioritising the projects takes into account the time value of money. It considers the discounted cash flow over the project life instead of the payback period. A project that may earn lesser in the first year but makes up in the second year than one where the returns decrease and take longer to earn back the money invested.
In this type of prioritising project, a company considers all the resources it uses for the project. This will include the physical resources, the time spent on the project, technical training time, etc. This method also compares the benefits of different projects and considers the loss suffered by not doing a project while selecting another one. It also helps compare different ways of completing a project and see which is most beneficial. This method also takes into account the need to move experienced people from existing projects to new ones.
This project selection method ranks them according to their importance to the company. Using this method allows organisations to identify projects that must be given top priority quickly. It works well when there are not many criteria to consider, and you can easily evaluate the factors involved. Companies must consider the rate of returns for this project. They must also look at what benefits it will offer to the stakeholders. The decision-makers must see if, by doing the project, the establishment can improve its efficiency.
The scoring model is effective when there are too many criteria to consider. It is also applicable when the projects taken for comparison are very much different. In this method, groups of factors are taken into consideration. These groups can be risks, benefits, return on investment or strategic alignment. One also gives a weightage for each group besides giving a rating for each criterion. This method uses these weights and their total score to arrive at a decision.
Analytic Hierarchy Process
This method uses a combination of subjective and mathematical models to give a more holistic approach to project selection. Several similar criteria of the two projects are compared against each other to avoid biases and errors. Its strength lies in converting abstract values to numbers, thereby giving more transparency to your decision to choose one of the projects.
One can learn more about the different methods at the Advanced Certificate Course in Operations, Supply Chain and Project Management offered by us. Visit our website to know more about the course and what it offers.
Projects that are not feasible are eliminated at this stage. Those that will have restrictions due to regulations are discarded first. This step helps to reduce the workload for future steps.
- Individual Project Evaluation
Once the elimination is over, inputs from the projects are taken for comparison. Depending on the chosen method, executives will analyse the tasks for the cost and returns at each phase. Net Present Value, Payback Period, Internal Rate of Return, etc., are considered for evaluation.
If some non-mandatory projects don’t meet the pre-set economic criteria are removed at this stage.
- Portfolio Selection
Projects that help to meet the company’s development goals are ranked by combining the results of the earlier steps. Once the committee does the ranking, resources are allocated for each project.
- Portfolio Balancing And Adjustment
The decision-makers adjust the mix of projects in such a way that it brings the highest benefits to the company. The top management considers the Interdependence and mutual exclusivity of the projects at this stage.
Project Selection Best Practices
Assess The Existing Resources
This is the primary need for any project. Companies must know if they have the resources to complete the project on time and get returns out of it. If you don’t have the resources or are unable to acquire them, the project can stop in the middle and result in a loss for the firm. Attempting to do easier projects that you can complete easily will help in reaching a stage when the company can attempt larger and more profitable undertakings. Practising this helps to make your selection process more successful.
Clarity Of Scope
It is very important to know exactly what the project aims to achieve and how it is going to be done. All the stakeholders and others involved in it must know this very clearly. This will help them understand why certain activities are given priority. Having a strong kick-off meeting and explaining everything is the best thing to do before starting the work.
Consider The Business Objective
As part of your project selection work, it is best to ensure that it will help achieve the company’s larger business goals. It should not take you away from existing business strategies.
Review Existing Projects
Before embarking on a new project, it is best to review the existing ones. It is wise to keep a scorecard to help complete work as promised. It can also prevent you from getting distracted by more attractive projects. One must compare the scorecard and decide whether to take up the new one immediately or postpone it.
Involve The Team
Getting input from the team is very important. This will prevent frustration among them. It will also keep them informed about what they can expect soon. This will slow down the process. Having things thrown at them suddenly can overwhelm them. It is better to start small, slow, and then build from there.
Know The Limits
The most important part of project selection is to know when to stop. One must not continuously take on more projects just for the sake of numbers. This will help maintain quality in your work and keep customers happy. They will work as the best advertisements for your company.
We learned a lot about the process in this article. You can join our Advanced Certificate Course in Operations, Supply Chain and Project Management. Visit the website to learn how to join the programme.
Completing projects helps companies achieve good profits and satisfied customers. But one must be very clear about what projects to take up and which ones to let go of. This process is called project selection; if done correctly, everyone you execute will succeed. Taking time to assess and compare projects is better than having to stop them in the middle.