PROJMAN MOD 4: PROJECT SELECTION PROCESS measurements relate such factors as the opportunity cost of an
PROJECT SELECTION - refers to the process of outlining and investment or take non-financial considerations into mind.
choosing the next venture for a team. Projects typically compete for Benefit-Cost Analysis: With this method, you compare the costs of a
resources, so you must consider the demands and goals of each project against its benefits. Consider that a coffee shop wants to
potential project and prioritize them accordingly. open a new location. The costs of inventory, training, hiring, and
running a new location are all considerable. Still, the benefit of a
Who Does the Project Selection Process? new location can bring increased revenue and brand expansion,
The leaders of a company will often ultimately rank project priority, both of which are positives for the business.
but a project manager’s expertise is also often welcome in the Payback Period: This is the measure of the time it takes to be paid
selection process. back on an initial investment. A project with a shorter payback
Role of Project Manager in Project Selection period may be preferable to one with a longer payback period;
● possesses specific knowledge and skills that a higher-level however, it is also important to consider the project’s ongoing costs
executive may not, such as more insight into the risks and and income potential. This method is fairly simplistic in its scope, as
resource requirements of a proposal. it focuses only on cash flow and does not acknowledge any potential
● should also have a solid understanding of the needs and talents of risks involved in the process. In the coffee shop example, the
your teams. payback period is the amount of time it takes for the new shop to
● act as sounding boards for executives and influence the choice of make enough money to pay back the initial investment. The buildout
the project and how it is ultimately carried out. of the space, hiring, and training of the new staff; inventory for the
● acting as the liaison between the team and the executives. new store; and everything else involved with the opening must be
Identify the most influential decision makers and their priorities tallied up and compared against the money the new store is making.
for the company. Discounted Cash Flow Analysis: The value of a project’s income in
● offer unique insight into the overall capabilities of an organization. the future (based on factors such as inflation or the declining need
If you believe that your company lacks the resources or time for of a product or service) can be an important consideration. The most
one project, bring this up as early as possible in the planning and beneficial projects are those that will make money for an
selection process. organization long past its initial completion. Consider that the new
What Are the Common Management Focus Areas in Project coffee shop is located in a great location, next to a college campus.
Selection? However, you also need to consider that the students are not on
● total budget and payback period campus the whole year round, and when there are fewer students,
● availability of resources there is less revenue.
● potentials for profit and growth Net Present Value (NPV): Net present value is the relationship
● timeline management risks between the current cost of a project and the money it brings in, or
● the success of past projects the return on investment (ROI). A higher NPV is generally preferable,
● executives’ concerns and it should always be positive. NPV considers the time value of
● strengths and weaknesses of your team money and takes discounted cash flow into effect over the life of a
project, rather than only considering the payback period. For
Project Selection Methods example, a new coffee shop in Location A costs $25,000 to open and
2 Categories: is expected to make $12,000 a year for the next three years. A
CONSTRAINED OPTIMIZATION METHODS - prioritize numerical and second spot, Location B, costs the same amount to open, but is
mathematical advantages. sometimes use complex mathematical expected to make an uneven amount of money each year over the
concepts to account for certain variables in the project selection same period of time: $10,000 the first year, $15,000 the second, and
process. $25,000 the third. With this in mind, the NPV of Location B may be
Examples of common constrained optimization methods: preferable because the initial investment is paid back faster than the
Integer Programming: This method prioritizes whole numbers over new shop in Location A
partial results. For example, a company would not want to build a Opportunity Cost: This figure considers the cost of a project in its
partial car, only a whole car, so the determination is framed with entirety, not just financially. This can include the physical resources,
whole cars in mind. time spent, and technical training time, as well as other factors.
Linear Programming: This method focuses on maximizing a given Opportunity cost aggregates the total cost of a project, not only the
variable by manipulating other linear variables. For example, you numerical costs. For example, opportunity cost would consider the
can reduce the total cost of a project by reducing the time you take cost of moving experienced baristas from well-performing existing
to complete it. If you can sell cars as fast as you can make them, you shops to new shops, possibly reducing the speed and quality of
can sell more cars by making them faster. drinks at those stores until their replacements are trained. In this
Dynamic Programming: This method breaks down a large problem example, the owners may also lose customers who do not have time
into smaller, more manageable pieces. Instead of “building a car,” a to wait longer for drinks or who feel very attached to a particular
company might focus on first building each individual piece of a car, barista.
and then putting it all together. Economic Model: Every new endeavour can create financial and
Multiple Objective Programming: This method is, in many ways, a social capital for a company. Economic value added (EVA) is the
combination of all of the above. Here, you create a system of metric that determines the financial value added to an organization
functions that can help mathematically optimize your decisions. By by the work on or completion of a project. A well-performing new
creating equations that define the time and costs of each step of coffee shop will increase a company’s financial assets by the revenue
making a car, you can adjust variables as needed at any point and it generates and its potential to create future income.
see a model of expected results. Non-Financial Considerations: An organization must consider many
non-financial factors when selecting a project. These can include
BENEFIT MEASUREMENT METHODS - focus on more accessible environmental impact, social and customer impact, and adherence
concepts, such as opportunity cost and payback periods. Use these to company goals and values. It can be difficult to weigh these
numbers to reflect day-to-day operations for a business. Benefit directly against financial factors, and will often also be considered.
PROJECT SELECTION - refers to the process of outlining and investment or take non-financial considerations into mind.
choosing the next venture for a team. Projects typically compete for Benefit-Cost Analysis: With this method, you compare the costs of a
resources, so you must consider the demands and goals of each project against its benefits. Consider that a coffee shop wants to
potential project and prioritize them accordingly. open a new location. The costs of inventory, training, hiring, and
running a new location are all considerable. Still, the benefit of a
Who Does the Project Selection Process? new location can bring increased revenue and brand expansion,
The leaders of a company will often ultimately rank project priority, both of which are positives for the business.
but a project manager’s expertise is also often welcome in the Payback Period: This is the measure of the time it takes to be paid
selection process. back on an initial investment. A project with a shorter payback
Role of Project Manager in Project Selection period may be preferable to one with a longer payback period;
● possesses specific knowledge and skills that a higher-level however, it is also important to consider the project’s ongoing costs
executive may not, such as more insight into the risks and and income potential. This method is fairly simplistic in its scope, as
resource requirements of a proposal. it focuses only on cash flow and does not acknowledge any potential
● should also have a solid understanding of the needs and talents of risks involved in the process. In the coffee shop example, the
your teams. payback period is the amount of time it takes for the new shop to
● act as sounding boards for executives and influence the choice of make enough money to pay back the initial investment. The buildout
the project and how it is ultimately carried out. of the space, hiring, and training of the new staff; inventory for the
● acting as the liaison between the team and the executives. new store; and everything else involved with the opening must be
Identify the most influential decision makers and their priorities tallied up and compared against the money the new store is making.
for the company. Discounted Cash Flow Analysis: The value of a project’s income in
● offer unique insight into the overall capabilities of an organization. the future (based on factors such as inflation or the declining need
If you believe that your company lacks the resources or time for of a product or service) can be an important consideration. The most
one project, bring this up as early as possible in the planning and beneficial projects are those that will make money for an
selection process. organization long past its initial completion. Consider that the new
What Are the Common Management Focus Areas in Project coffee shop is located in a great location, next to a college campus.
Selection? However, you also need to consider that the students are not on
● total budget and payback period campus the whole year round, and when there are fewer students,
● availability of resources there is less revenue.
● potentials for profit and growth Net Present Value (NPV): Net present value is the relationship
● timeline management risks between the current cost of a project and the money it brings in, or
● the success of past projects the return on investment (ROI). A higher NPV is generally preferable,
● executives’ concerns and it should always be positive. NPV considers the time value of
● strengths and weaknesses of your team money and takes discounted cash flow into effect over the life of a
project, rather than only considering the payback period. For
Project Selection Methods example, a new coffee shop in Location A costs $25,000 to open and
2 Categories: is expected to make $12,000 a year for the next three years. A
CONSTRAINED OPTIMIZATION METHODS - prioritize numerical and second spot, Location B, costs the same amount to open, but is
mathematical advantages. sometimes use complex mathematical expected to make an uneven amount of money each year over the
concepts to account for certain variables in the project selection same period of time: $10,000 the first year, $15,000 the second, and
process. $25,000 the third. With this in mind, the NPV of Location B may be
Examples of common constrained optimization methods: preferable because the initial investment is paid back faster than the
Integer Programming: This method prioritizes whole numbers over new shop in Location A
partial results. For example, a company would not want to build a Opportunity Cost: This figure considers the cost of a project in its
partial car, only a whole car, so the determination is framed with entirety, not just financially. This can include the physical resources,
whole cars in mind. time spent, and technical training time, as well as other factors.
Linear Programming: This method focuses on maximizing a given Opportunity cost aggregates the total cost of a project, not only the
variable by manipulating other linear variables. For example, you numerical costs. For example, opportunity cost would consider the
can reduce the total cost of a project by reducing the time you take cost of moving experienced baristas from well-performing existing
to complete it. If you can sell cars as fast as you can make them, you shops to new shops, possibly reducing the speed and quality of
can sell more cars by making them faster. drinks at those stores until their replacements are trained. In this
Dynamic Programming: This method breaks down a large problem example, the owners may also lose customers who do not have time
into smaller, more manageable pieces. Instead of “building a car,” a to wait longer for drinks or who feel very attached to a particular
company might focus on first building each individual piece of a car, barista.
and then putting it all together. Economic Model: Every new endeavour can create financial and
Multiple Objective Programming: This method is, in many ways, a social capital for a company. Economic value added (EVA) is the
combination of all of the above. Here, you create a system of metric that determines the financial value added to an organization
functions that can help mathematically optimize your decisions. By by the work on or completion of a project. A well-performing new
creating equations that define the time and costs of each step of coffee shop will increase a company’s financial assets by the revenue
making a car, you can adjust variables as needed at any point and it generates and its potential to create future income.
see a model of expected results. Non-Financial Considerations: An organization must consider many
non-financial factors when selecting a project. These can include
BENEFIT MEASUREMENT METHODS - focus on more accessible environmental impact, social and customer impact, and adherence
concepts, such as opportunity cost and payback periods. Use these to company goals and values. It can be difficult to weigh these
numbers to reflect day-to-day operations for a business. Benefit directly against financial factors, and will often also be considered.
