Chapter Two Organization Strategy and Project Selection 2

Chapter Two Organization Strategy and Project Selection 2– 1

Strategy • A strategy is a coordinated set of actions to fulfill objectives, purposes and goals. • Strategy describes how an organization intends to compete with the resources available in the existing and perceived future environment. • Strategy starts with a mission. • A business strategy is a plan articulating where a business seeks to go and how it expects to get there. • There are several “strategies” worth examining. 2– 2

Indicators of Misjudging the Role of Projects in Accomplishing Strategy • Mistakes caused by not understanding the role of projects in accomplishing strategy: – Focusing on problems or solutions with low strategic priority. – Focusing on the immediate customer rather than the whole market place and value chain. – Overemphasizing technology that results in projects that pursue exotic technology that does not fit the strategy or customer need – Trying to solve customer issues with a product or service rather than focusing on the 20% with 80% of the value (Pareto’s Law: roughly 80% of the effects come from 20% of the causes). – Engaging in a never-ending search for perfection only the project team really cares about. 2– 3

Solution to the bad link Project Managers need to understand two main issues: – Strategic management process – Project selection processes 2– 4

The Strategic Management Process: An Overview • Strategic management: the art and science of formulating, implementing and evaluating crossfunctional decisions that enable an organization to achieve its objectives. • Strategic management is the process of assessing “what we are” and deciding and implementing “what we intend to be and how we are going to get there. ” 2– 5

The Strategic Management Process: An Overview • Strategic Management – Requires every project to be clearly linked to strategy. – Provides theme and focus of firm’s future direction. • Responding to changes in the external environment— environmental scanning • Allocating scarce resources of the firm to improve its competitive position—internal responses to new programs – Requires strong links among mission, goals, objectives, strategy, and implementation. 2– 6

Strategic Management Process FIGURE 2. 1 2– 7

Why Project Managers Need to Understand the Strategic Management Process • Changes in the organization’s mission and strategy – Project managers must respond to changes with appropriate decisions about future projects and adjustments to current projects. – Project managers who understand their organization’s strategy can become effective advocates of projects aligned with the firm’s mission. 2– 8

Strategic Management Process Activities 1. Review and define the organizational mission. 2. Set long-range goals and objectives. 3. Analyze and formulate strategies to reach objectives. 4. Implement strategies through projects 2– 9

Strategic Management Process Activities Mission Statement • Mission statements identify the scope of the organization in terms of its product or service. • A written mission statement provides focus for decision making when shared by organizational managers and employees. • The mission statement communicates and identifies the purpose of the organization to all stakeholders. • Mission statements can be used for evaluating organization performance. • Mission statements change infrequently. • A rule-of-thumb test for a mission statement is, if the statement can be anybody’s mission statement, it will not provide the guidance and focus intended. 2– 10

Strategic Management Process Activities Sample Mission Statements • "El-Wedad Society works on development and rehabilitation of the local society targeting children, youth and women through providing social, educational, and psychological services with a high quality and non discrimination" • As an affiliate of Islamic Relief Worldwide, IRPAL works to fight poverty, respond to emergencies, and achieve sustainable development in Palestine. 2– 11

Strategic Management Process Activities Set long-range goals and objectives • Objectives translate the organization mission into specific, concrete, measurable terms. • Organizational objectives set targets for all levels of the organization. • Objectives answer in detail where a firm is headed and when it is going to get there. • In every case, objectives should be as operational as possible. That is, objectives should include a time frame, be measurable, be an identifiable state, and be realistic. 2– 12

Characteristics of Objectives S Specific Be specific in targeting an objective M Measurable Establish a measurable indicator(s) of progress A Assignable Make the objective assignable to one person for completion R Realistic State what can realistically be done with available resources T Time related State when the objective can be achieved, that is, duration 2– 13

Strategic Management Process Activities Analyze and Formulate Strategies to Reach Objectives • Formulating strategy answers the question of what needs to be done to reach objectives. • Strategy formulation includes: – Determining and evaluating alternatives that support the organization’s objectives; and – Selecting the best alternative. • Critical analysis of the strategies includes asking questions: – – Does the strategy take advantage of our core competencies? Does the strategy exploit our competitive advantage? Does the strategy maximize meeting customers’ needs? Does the strategy fit within our acceptable risk range? 2– 14

Strategic Management Process Activities Between formulation and implementing strategies • Strategy formulation ends with cascading objectives or projects assigned to lower divisions, departments, or individuals. • Formulating strategy might range around 20 percent of management’s effort, while determining how strategy will be implemented might consume 80 percent. • Implementation answers the question of how strategies will be realized, given available resources. 2– 15

Strategic Management Process Activities Implement Strategies through Projects • Therefore, implementation must include attention to several key areas: 1. completing tasks requires allocation of resources (funds, people, management talents, technological skills, and equipment). 2. implementation requires a formal and informal organization that complements and supports strategy and projects (structure and culture). 3. planning and control systems must be in place to be certain project activities necessary to ensure strategies are effectively performed. 4. motivating project contributors will be a major factor for achieving project success. 5. an area receiving more attention in recent years is prioritizing projects. 2– 16

Scenario Planning: A Supplement to Traditional Strategic Planning Accelerating changes and uncertainty in the world about us force some organizations to supplement strategic planning with the longer view called scenario planning. . ﺳﻴﻨﺎﺭﻳﻮﻫﺎﺕ ﻫﻲ ﻗﺼﺺ ﻛﻴﻒ ﺃﻨﻨﺎ ﻧﻌﺘﻘﺪ ﺃﻦ ﺍﻷﻤﻮﺭ ﻳﻤﻜﻦ ﺃﻦ ﺗﻠﻌﺐ ﺑﻬﺎ ﻋﻠﻰ ﺍﻟﻤﺪﻯ ﺍﻟﻄﻮﻳﻞ • “Scenario planning is risk contingency planning, without really moving organizational resources. ” • Scenarios are stories of how we believe things could play out in the longer run. • Scenario planning is a structured process of thinking about future possible environments that would have potential high impact to disrupt the way you do business, and then developing potential strategies to compete in these altered environments. 2– 17

Scenario Planning: A Supplement to Traditional Strategic Planning Clarifying your core business and assessing drivers of change in the industry environment Developing potential scenarios and assessing the impact of STEEP factors Developing potential contingency strategies and best future strategic options Identifying early indicators and establishing triggers for strategic action 2– 19

Scenario Planning: Assessing Your Core Business and Industry Ask these questions: – How will the future unfold for your business? – What product or service does your organization provide society? – How fast is your industry changing? – What are the driving environmental forces that can cause your industry to change? – How long would it take for your industry to make a major change to a new direction—e. g. , technology breakthrough, new legislation, political movement or regulation? 2– 21

Scenario Planning: Potential Scenarios and Impact Follow these steps: – Brainstorming potential global forces that could have a substantial impact and alter the way your organization does business (typical global forces influencing scenarios are social, technological, environmental, economic, political (STEEP), and global institutions). – With perhaps over 100 potential events identified, the team narrows the list to a small number of events that could alter your current business model. – Determine what each scenario means for your organization and assess how you may address the event if it occurs. 2– 23

Scenario Planning: Potential Strategies Assuming the scenario occurs: – What strategy(s) would you use to move the organization to respond to the change? – How does the industry make major changes today— in 1– 2 years, 3– 5 years, 6– 10 years? – Given your core competencies, is your organization capable of changing to operate in this future environment? – How would your competition react to this new scenario? – What strategic options would work best for your organization? 2– 25

Scenario Planning: Indicators & Triggers • Scenario planning concludes with identifying early indicators for different scenarios and establishing “triggers” that tell you the event is quickly approaching and detailed strategic planning is needed. • What upstream factors and driving forces cause the scenario to move forward (technology, political, economic, and social)? • What must come true for the scenario event to materialize and cause you to take action? 2– 27

Project Portfolio Management • Project Portfolio Management is often compared to Financial Portfolio Management which is based on the work of Professor Harry Markowitz from the early 1950’s and which provides insight into the efficient allocation of financial resources among financial investment opportunities such as stocks and other financial assets. • There are similarities – diversification and the pursuit of selecting the “best” collection of stocks or projects – but there are differences too. A financial portfolio manager can select stocks across industries but a project portfolio manager is limited to selecting projects which lie within the capabilities of the organization. 2– 29

What is Project Portfolio Management? • Project Portfolio Management (PPM) is a management process designed to help an organization identify new project opportunities, acquire information about these opportunities, and rank and prioritize them against a specified set of criteria such as strategic fit, cost, risk, expected return etc. • PPM is also about periodically and carefully reviewing all the projects which have been selected for inclusion in the portfolio and which are in various stages of initiation, planning and implementation, with a view to determining which projects should move up on the priority scale (and thus get preference for available resources), which ones should move down and which projects should be considered for modification and/or premature termination. 2– 30

Goals of Project Portfolio Management • Ensure that all new and existing projects are aligned with the organization’s mission, goals and objectives • Produce and maintain a comprehensive listing of all projects which the organization is undertaking • Develop a “bigger picture view” and a deep understanding of the project collection as a whole • Create an “objective” methodology for identifying, ranking, prioritizing and selecting new projects • Enable the removal of low value projects from the portfolio • Help the organization make the best use of resources which it has available for its projects • Ensure that a healthy balance across different types of projects with different cost, schedule, complexity and risk profiles is maintained 2– 31

When Is There A Need for Project Portfolio Management? • There is a recognition that resources are being misspent • Many projects are not adding “strategic value” to the organization • Too many small projects underway • Excessive project delays are experienced due to lack of resources • Frequent difficulty getting people to build project teams • Project staff are involved in too many projects and putting in too much overtime work • Intense competition (versus cooperation) between areas of the organization with regard to financing and staffing projects • Frequent change of status of projects (active – on-hold – priority ) 2– 32

Benefits of Project Portfolio Management • Builds discipline into the project selection process. • Links project selection to strategic metrics. • Prioritizes project proposals across a common set of criteria, rather than on politics or emotion. • Allocates resources to projects that align with strategic direction. • Balances risk across all projects. • Justifies killing projects that do not support strategy. • Improves communication and supports agreement on project goals. 2– 33

Projects and Project Portfolio Management • Project Management is about “doing projects right” after the projects have been accepted for inclusion in the project portfolio. • Project Portfolio Management is about “doing the right projects”, namely, ensuring that only those projects are selected for subsequent inclusion in the project portfolio which will add value to the organization. 2– 34

Projects and Project Portfolio Management Projects • • • Cause change beneficial for the organization Focus on project goal, budget, schedule, requirements and stakeholders Use a process- and tool-based methodology Compete with other projects for resources Are defined by their complexity, risk, cost, schedule, expected return and other factors May fail or be prematurely terminated Project Portfolios • • • Must add maximum value to organization for the resources provided Must be consistent with the organization’s mission, goals and objectives Are based on a robust and consistently applied process for selecting and managing projects Need to be periodically monitored for performance and revamped if necessary Are holistic in outlook and aid senior mgt. decision-making 2– 35

Project Portfolio Management (one more thing) Project Portfolio Management is an iterative process. The performance of the projects selected for inclusion in the portfolio must be periodically monitored after they have been initiated in order to determine whether in a changing internal and external environment they are still aligned with the organization’s mission, goals and objectives and, if this is no longer the case, either modified accordingly or prematurely terminated so that resources can be redirected towards other (high value-adding) projects. 2– 36

Project Portfolio Management Problems • The Implementation Gap – The lack of understanding and consensus on strategy among top management and middle-level (functional) managers who independently implement the strategy. • Organization Politics – Project selection is based on the persuasiveness and power of people advocating the projects. • Resource Conflicts and Multitasking – Multiproject environment creates interdependency relationships of shared resources which results in the starting, stopping, and restarting projects. 2– 37

Project Portfolio Management Problems (Implementation Gap) Some symptoms of organizations struggling with strategy disconnect and unclear – priorities are presented here. – Conflicts frequently occur among functional managers and cause lack of trust. – Frequent meetings are called to establish or renegotiate priorities. – People frequently shift from one project to another, depending on current priority. – Employees are confused about which projects are important. – People are working on multiple projects and feel inefficient. – Resources are not adequate. 2– 38

Project Portfolio Management Problems (Organization Politics) • Project selection may be based not so much on facts and sound reasoning, but rather on the persuasiveness and power of people advocating projects. • The term “sacred cow” is often used to denote a project that a powerful, high-ranking official is advocating. • Having a project sponsor (high-ranking managers ) can play a significant role in the selection and successful implementation of product innovation projects. • Individuals can enhance their power within an organization by managing extraordinary and critical projects. 2– 39

Project Portfolio Management Problems (Conflict & Multitasking) • All project managers seek to have the best people for their projects. • Multitasking involves starting and stopping work on one task to go and work on another project, and then returning to the work on the original task. • The number of small and large projects in a portfolio almost always exceeds the available resources (typically by a factor of three to four times the available resources). • A multi-project organization environment faces major problems without a priority system that is clearly linked to the strategic plan. 2– 40

A Portfolio Management System • The aim of portfolio management is to ensure that projects are aligned with strategic goals and prioritized appropriately. • Design of a project portfolio system: – Classification of a project – Selection criteria depending upon classification – Sources of proposals – Evaluating proposals – Managing the portfolio of projects. 2– 41

A Portfolio Management System (classification of Projects) Many organizations find they have three different kinds of projects in their portfolio: compliance and emergency (must do), operational, and strategic projects. • Compliance projects (must do) are typically those needed to meet regulatory conditions required to operate in a region; They usually have penalties if they are not implemented. • Operational projects are those that are needed to support current operations to improve efficiency of delivery systems, reduce product costs, and improve performance. (TQM) • Strategic projects are those that directly support the organization’s long-run mission. (increasing revenue or market share). 2– 42

Portfolio of Projects by Type FIGURE 2. 2 2– 43

A Portfolio Management System • Selection Criteria – Financial: payback, net present value (NPV), internal rate of return (IRR) – Non-financial: projects of strategic importance to the firm. • Multi-Weighted Scoring Models – Use several weighted selection criteria to evaluate project proposals. 2– 44

Financial Models • The Payback Model – Measures the time the project will take to recover the project investment. – Uses more desirable shorter paybacks. – Emphasizes cash flows, a key factor in business. Payback period (yrs) = Estimated Project Cost/Annual Savings • Limitations of Payback: – Ignores the time value of money. – Assumes cash inflows for the investment period (and not beyond). – Does not consider profitability. 2– 45

Example Comparing Two Projects Using Payback Method EXHIBIT 2. 3 a 2– 46

Nonfinancial Strategic Criteria • Now the prevailing thinking is that long-term survival is dependent upon developing and maintaining core competencies. • A firm may support projects that do not have high profit margins for other strategic reasons including: – To capture larger market share – To make it difficult for competitors to enter the market – To develop an enabler product, which by its introduction will increase sales in more profitable products – To develop core technology that will be used in next-generation products – To reduce dependency on unreliable suppliers – To prevent government intervention and regulation 2– 47

Two Multi-Criteria Selection Models • Checklist Model – Uses a list of questions to review potential projects and to determine their acceptance or rejection. – Fails to answer the relative importance or value of a potential project and doesn’t to allow for comparison with other potential projects. • Multi-Weighted Scoring Model – Uses several weighted qualitative and/or quantitative selection criteria to evaluate project proposals. – Allows for comparison of projects with other potential projects 2– 48

Sample Selection Questions Used in Practice (checklist) Topic Question Strategy/alignment What specific strategy does this project align with? Driver What business problem does the project solve? Success metrics How will we measure success? Sponsorship Who is the project sponsor? Risk What is the impact of not doing this project? Risk What is the project risk to our organization? Risk Where does the proposed project fit in our risk profile? Benefits, value, ROI What is the value of the project to this organization? Benefits, value, ROI When will the project show results? Objectives What are the project objectives? EXHIBIT 2. 4 2– 49

Sample Selection Questions Used in Practice Topic Question Organization culture Is our organization culture right for this type of project? Resources Will internal resources be available for this project? Approach Will we build or buy? Schedule How long will this project take? Schedule Is the time line realistic? Training/resources Will staff training be required? Finance/portfolio What is the estimated cost of the project? Portfolio Is this a new initiative or part of an existing initiative? Portfolio How does this project interact with current projects? Technology Is the technology available or new? EXHIBIT 2. 4 cont’d 2– 50

Project Screening Matrix FIGURE 2. 3 2– 51

Applying a Selection Model • Project Classification – Deciding how well a strategic or operations project fits the organization’s strategy. • Selecting a Model – Applying a weighted scoring model to bring projects to closer with the organization’s strategic goals. • Reduces the number of wasteful projects • Helps identify proper goals for projects • Helps everyone involved understand how and why a project is selected 2– 52

Project Proposals • Sources and Solicitation of Project Proposals – Within the organization – Request for proposal (RFP) from external sources (contractors and vendors) • Ranking Proposals and Selection of Projects – Prioritizing requires discipline, accountability, responsibility, constraints, reduced flexibility, and loss of power. • Managing the Portfolio – Senior management input – The priority team (project office) responsibilities 2– 53

A Proposal Form for an Automatic vehicular tracking (AVL) Public Transportation Project FIGURE 2. 4 A 2– 54

Risk Analysis for 500 -Acre Wind Farm FIGURE 2. 4 B 2– 55

Managing the Portfolio • Senior Management Input – Provide guidance in selecting criteria that are aligned with the organization’s goals – Decide how to balance available resources among current projects • The Priority Team Responsibilities – Publish the priority of every project – Ensure that the project selection process is open and free of power politics. – Reassess the organization’s goals and priorities – Evaluate the progress of current projects 2– 56

Project Screening Process FIGURE 2. 5 2– 57

Priority Analysis FIGURE 2. 6 2– 58