Role of the Executive in Project Selection

A prime responsibility of senior management (and possibly project sponsors) is the selection of projects. Most organizations have an established selection criteria, which can be subjective, objective, quantitative, qualitative, or simply a seat-of-the-pants guess. In any event, there should be a valid reason for selecting the project.

From a financial perspective, project selection is basically a two-part process. First, the organization will conduct a feasibility study to determine whether the project can be done. The second part is to perform a benefit-to-cost analysis to see whether the company should do it.

The purpose of the feasibility study is to validate that the project meets feasibility of cost, technological, safety, marketability, and ease of execution re-

quirements. It is possible for the company to use outside consultants or subject matter experts (SMEs) to assist in both feasibility studies and benefit-to-cost analyses. A project manager may not be assigned until after the feasibility study is completed.

As part of the feasibility process during project selection, senior management often solicits input from SMEs and lower level managers through rating models. The rating models normally identify the business and/or technical criteria against which the ratings will be made. Figure 11 -6 shows a scaling model for a single project. Figure 11-7 shows a checklist rating system to evaluate three projects at once. Figure 11-8 shows a scoring model for multiple projects using weighted averages.

If the project is deemed feasible and a good fit with the strategic plan, then the project is prioritized for development along with other projects. Once feasibility is determined, a benefit-to-cost analysis is performed to validate that the project will, if executed correctly, provide the required financial and nonfinancial benefits. Benefit-to-cost analyses require significantly more information to be scrutinized than is usually available during a feasibility study. This can be an expensive proposition.

Estimating benefits and costs in a timely manner is very difficult. Benefits are often defined as:

• Tangible benefits for which dollars may be reasonably quantified and measured.

• Intangible benefits that may be quantified in units other than dollars or may be identified and described subjectively.

Costs are significantly more difficult to quantify, at least in a timely and inexpensive manner. The minimum costs that must be determined are those that specifically are used for comparison to the benefits. These include:

• The current operating costs or the cost of operating in today's circumstances.

• Future period costs that are expected and can be planned for.

• Intangible costs that may be difficult to quantify. These costs are often omitted if quantification would contribute little to the decision-making process.

There must be careful documentation of all known constraints and assumptions that were made in developing the costs and the benefits. Unrealistic or unrecognized assumptions are often the cause of unrealistic benefits. The go or no-go decision to continue with a project could very well rest upon the validity of the assumptions.

Table 11-4 shows the major differences between feasibility studies and benefit-to-cost analyses.

Figure 11-6.

Illustration of a scaling model for one project, Project A. Source: William E. Souder, Project Selection and Economic Appraisal, p. 66.

Figure 11-6.

Illustration of a scaling model for one project, Project A. Source: William E. Souder, Project Selection and Economic Appraisal, p. 66.

CRITERIA

DC ft

PROJECTS

PROJECT A

PROJECTB

PROJECT C

PROJECTS

PROJECT A

PROJECTB

PROJECT C

3

2

1

3

3

i

3

2

t

y

y

y

y

y

y

y

y

Figure 11-7. Illustration of a checklist for three projects. Source: William Souder, Project Selection and Economic Appraisal, p. 68.

TOTAL SCORE

Figure 11-7. Illustration of a checklist for three projects. Source: William Souder, Project Selection and Economic Appraisal, p. 68.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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