Project Selection

Project selection is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved. This same systematic process can be applied to any area of the organization's business in which choices must be made between competing alternatives. For example, a manufacturing firm can use evaluation/selection techniques to choose which machine to adopt in a part-fabrication process; a TV station can pick out which of several syndicated comedy shows to rerun in its 7:30 pm weekday time-slot; a trucking firm can use these methods to decide which of several tractors to purchase; a construction firm can select the best subset of a large group of potential projects on which to bid; a hospital can find the best mix of psychiatric, orthopedic, obstetric, pediatric, and other beds for a new wing; or a research lab can choose the set of R & D projects that holds the best promise of reaching a technological goal.

In this chapter we look at the procedures firms use to decide which creative idea to support, which new technology to develop, which repair to authorize. Each project will have different costs, benefits, and risks. Rarely are these known with certainty. In the face of such differences, the selection of one project out of a set is a difficult task. Choosing a number of different projects, a portfolio, is even more complex.

This chapter, like Appendixes A and B, may cover a subject not customarily covered in books on project management. Though the project manager often enters the picture at the stage of the project life cycle following selection, in many situations the project manager is the person who has worked and lobbied for the selection of this specific project, particularly if an RFP (Requést For Proposal) was involved. Moreover, though project evaluation and selection is usually a task for senior management, this is an important part of the project life cycle because project success is judged by the degree to which the project meets its goals. Since project selection is based on a direct statement of those goals, the project manager needs to know them in order to perform effectively.

In this chapter we discuss several techniques that can be used to help decision makers select projects. Project selection is only one of many decisions associated with project management. To deal with all of these problems, we use decision-aiding models. We need such models because they abstract the relevant issues about a problem from the welter of detail in which the problem is embedded.

Realists cannot solve problems, only idealists can do that. Reality is far too complex to deal with in its entirety. The reality of this page, for instance, includes the weight of ink imprinted on it as well as the number of atoms in the period at the end of this sentence. Those aspects of reality are not relevant to a decision about the proper width of the left margin or the precise position of the page number. An "idealist" is needed to strip away almost all the reality from a problem, leaving only the aspects of the "real" situation with which he or she wishes to deal. This process of carving away the unwanted reality from the bones of a problem is called modeling the problem. The idealized version of the problem that results is called a model.

The model represents the problem's structure, its form. Every problem has a form, though often we may not understand a problem well enough to describe its structure. Several different types of models are available to make the job of modeling the problem easier. Iconic models are physical representations of systems. The category includes everything from teddy bears to the dowel rod and styrofoam model of an atom hanging from the ceiling of a high school chemistry lab. Analogue models are similar to reality in some respects and different in others. Traditionally, every student of elementary physics was exposed to the hydraulic analogy to explain electricity. This model emphasized the similarities between water pressure and voltage, between the flow of water add the flow of electrical current, between the reservoir and the capacitor. Verbal models use words to describe systems— George Orwell's novel Animal Farm, for example. Diagrammatic models may be used to explain the hierarchical command structure of an army battalion or a business firm, just as graphic models may be used to illustrate the equilibrium solution to problems of supply and demand. We will use all these models in this book, as well as flow graph and network models to help solve scheduling problems, matrix models to aid in project evaluation, and symbolic (mathematical) models for a number of purposes.

This wide variety of models allows the decision maker considerable choice. Most problems can be modeled in several different ways, and it is often not difficult to transform a problem from one model to another—the transformation from matrix to network to mathematical models, for instance, is usually straightforward. The decision maker usually has some leeway in selecting the model form.

Models may be quite simple to understand, or they may be extremely complex. In general, introducing more reality into a model tends to make the model more difficult to manipulate. If the input data for a model are not known precisely, we often use probabalistic information; that is, the model is said to be stochastic rather than deterministic. Again, in general, stochastic models are more difficult to manipulate. (Readers who are not familiar with the fundamentals of decision making might find a book such as The New Science of Management Decisions |57j or Fundamentals of Management Science |65j useful.) A few of the models we discuss employ mathemati cal programming techniques for solution. These procedures are rarely used, but they illustrate a logic that can be useful; and it is not necessary to understand mathematical programming to profit from the discussion.

This chapter relies heavily on the use of models for project evaluation and selection. First, we examine fundamental types of project selection models and the characteristics that make any model more or less acceptable. Next we consider the limitations, strengths, and weaknesses of project selection models, including some suggestions of factors to consider when making a decision about which, if any, of the selection models to use (see also the end of Section 2.3). We then discuss the problem of selecting projects when high levels of uncertainty about outcomes, costs, schedules, or technology are present. Finally, we comment on some special aspects of the information base required for project selection.

One might argue that we should discuss the project proposal, its contents and construction, before considering project selection models. It is, however, useful to understand how an idea will be evaluated before deciding on how best to present the idea. Further, we set aside the issue of where ideas come from and how they are introduced into the process that, sooner or later, results in a proposal. The subject is certainly of consequence, but project managers are rarely directly involved. As a result, consideration of idea generation is relegated to Appendix A. As noted, project proposals are discussed later in this chapter. We finish the chapter with a guess about the future of project selection models.

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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