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FA - Chapter 2

BUSI 2550

09/17/2018

Organizational Strategy and Project Selection

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Project Managers need to understand organizations mission/strategy because
o Make appropriate decisions and adjustments
o Demonstrate to senior management how project reflects/contributes to organizations
missions
Strategy
o Cost-leadership – focus on keeping low cost
o Differentiation – focus on differentiation products from competitors, premium, brand
name
o Niche market – focus on a specific target segment only
Strategic Management – Process of assessing “what we are” and deciding/implementing
“how/what we intend to be”
o 2 major dimensions of SM (strategic management)
 Responding to changes in external environment
 Allocating scarce resources to improve competition
o SM must link organizational mission, goals, objectives, strategy and implementation

Strategic Management Process

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FA - Chapter 2
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BUSI 2550

09/17/2018

Four activities of SM process
1
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Vision for org
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Analyze and formulate strategies (WHAT needs to done to reach objectives)
 Determining and evaluating alternatives that best support organizational
objective
 1 - evaluate past and current position of org
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Set objectives to achieve strategies (WHERE a firm is headed and WHEN its going to get
there)
 Objectives set targets for all levels of organization, pinpoint direction for
managers
 Objectives cover markets, products, innovation, productivity, quality, finance,
profitability, employees and consumers
 Characteristics of writing an objective
 S – Specific in targeting and objective
 M – Measurable indicators of progress
 A – Assignable to one person for completion
 R – Realistically state what can be done with available resources
 T – Time related (state duration until objective completion)
4
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The implementation gap
 Refers to lack of consensus of organization strategy among top and middle-level
managers
 As top management formulates strategy, implementation is left to functional managers
who make strategies and objectives independently
2
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Resource conflicts and Multitasking
Portfolio Management System
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Aim of PMS is to ensure projects are aligned with strategic goals and prioritized properly
Benefits of Project Portfolio Management
o Builds discipline into project selection process
o Links project selection to strategic metrics
o Prioritizes projects proposals across common set of criteria (not politics/emotion)
o Allocates resources to projects that align with strategic direction
o Balances risk across all projects
o Justifies killing projects that don’t support org
...
long-run mission (focused on
increasing revenue and market share
o Selection criteria depending upon classification
o Sources of proposals
o Evaluating proposals
o Managing portfolio of projects

Selection Criteria (how we select projects)
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Financial criteria – used when there’s a high level of confidence in estimates of future cash flows
o Payback model – measures recovery time of project investment
 Major limitations are ignoring the time value of money, assumes cash flows are
for investment period only and does not consider profitability
 Payback Period (years) = Estimated Project Cost / Annual Savings
o Net Present Value (NPV) – uses managements desired rate of return to calculate present
value of cash flows
 If NPV is positive, it meets the minimum desired rate of return and can be
considered
 If NPV is negative, project is rejected
 I0 = Initial Investment (negative number because it is an outflow)
 Ft = Net cash flow for period t
 K = required rate of return
Non-Financial criteria
o Nonfinancial reasons to support certain projects include restoring corporate image,
enhance brand recognition, capturing a larger market share, make it difficult for

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FA - Chapter 2

o

o

BUSI 2550

09/17/2018

competitors to enter market, develop an enabler product, develop core tech, reduce
dependency on unreliable suppliers, prevent gov
...
and provide a fair equal
comparison among other projects
Multi-weighted Scoring Method – uses qualitative/quantitate weighted selection criteria
to evaluate projects

Applying a Selection Model
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Selecting a model
o Factors such as researching new tech, public image, ethical position, protection of the
environment, core competencies and strategic fit are crucial for selecting projects
o Weighted scoring models are best alternative to meet needs above
Sources and solicitation of project proposals

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FA - Chapter 2

BUSI 2550

09/17/2018

o

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Organizations might issue an RFP (Request for Proposal to contractors/vendors to
implement a project
Ranking proposals and selection of projects
o Sample screening process for potential
contractors 
o Individual weighted scores are totaled for
each project and used to prioritize projects

Managing the Portfolio System
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Merits of project are assessed and
monitoring/adjusting criteria to reflect strategic focus
Senior management input
o Provide guidance in establishing criteria that
align with org
...
risk profile
o Risks associated with specific projects such as schedule, cost, technical, etc
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Usually improve current
products (like soft
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Projects, high commercial payoffs
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(EX: next-gen integrated circuit chip)
o Oysters – high risk, high value projects
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(EX: DNA treatments)
o White Elephants – projects that used to promising but are no longer viable

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