Top Project Selection Methods for Project Managers
Last updated on 30th Sep 2020, Artciles, Blog
Rarely an organization has unlimited resources to go after all available opportunities. In most cases, they have limited resources and they have to select the best option.
In project management, organizations have many techniques for project selection. They make a decision as the stakes can be high and wrong ones are costly.
Let’s say your organization has many proposals but they cannot undertake all of them due to resource constraints. Therefore, they will select a project that is the least risky and could provide them with the maximum profit. Often, recognition is also a factor.
As a project manager, you may not have any role in the project selection process but you should know why the project was selected and how it fits into the organization’s strategic objectives.
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Project Selection Methods
You can divide these techniques into two categories:
Benefit Measurement Methods
Constrained Optimization Methods
These techniques vary in complexity, however, the goal is the same: to provide your organization with maximum profit and recognition. Every organization has a defined process that helps them to choose the project that is aligned with its strategic objectives.
Who Selects the Projects?
Upper management, the steering committee, the project management office (PMO), the project selection committee or any other equivalent group of stakeholders uses these methods and selects the project.
They will use various criteria, such as:
Whether they have the technical expertise to complete it
If they have the resources required
If it will help them achieve their objectives
Now, we will discuss each type of project selection method.
Doing the right things in the right way provides assurance. Quality assurance can be defined as “an important part of quality management focused on providing confidence that quality requirements will be fulfilled.” Assurance is given upfront to all stakeholders. The confidence provided by quality assurance is twofold – internally to management and externally to customers, government agencies, regulators, certifiers, and third parties. Another definition of quality assurance is “all the planned and systematic activities implemented within the quality system that can be demonstrated to provide confidence that a product or service will fulfil requirements for quality.”
In simpler words, quality assurance means using standard processes for creating and delivering the expected product or service. It is a well-defined and proven way of creating a product or service.
Hence strict process compliance is central to quality assurance. Whatever set of processes and activities are identified for creating the deliverables, must be adhered to by the team. Process compliance ensures the team will create the right product.
Regular quality audits are conducted for checking process compliance by the team. Quality assurance is proactive and an on-going activity. QA focuses on preventing defects.
Quality control can be defined as “another important part of quality management focused on fulfilling quality requirements.” While quality assurance relates to how a process is performed or how a product is made, quality control is more about the inspection aspect of quality management. Another definition of quality control is “the operational techniques and activities focused on monitoring the final results obtained from quality assurance.”
Inspection is the key function performed as part of quality control. Inspection is the process of measuring, examining, and testing to verify one or more characteristics of a product or service and the comparison of these with specified requirements to determine conformity. Products, processes, and various other results can be inspected to make sure that the object coming off a production line, or the service being provided, is correct and meets specifications.
Quality control activities are carried when certain product or results are created by the team. It is also an on-going process throughout the production and development cycle.
Stress Management Techniques
Stress in today’s world has become an omnipresent phenomenon in every one’s lives. The degree of stress may vary. It is important to manage stress to ensure the well-being of an individual. In this context it is important to understand some basics about stress and stress management.
Stress is the “psychological, physiological and behavioural response by an individual when they perceive a lack of equilibrium between the demands placed upon them and their ability to meet those demands, which, over a period of time, leads to ill-health” (Palmer, 1989).
Stress is a process, not a diagnosis. When the term ‘stress’ is used in a clinical sense, it refers to a situation that causes discomfort and distress to a person and can lead to mental health problems, such as anxiety and depression. Stress may also contribute to various physical illnesses such as cardiovascular disease.
Stress builds up in an individual over time. Hence it is important for every individual to identify the conditions that stress is building up. It is also important to understand the reasons and type of stress. And manage stress effectively before it causes much damage to the individual.
Benefit Measurement Methods
This is the most popular technique for project selection and is based on the present value of estimated cash inflow and outflow. Here, you calculate the cost and benefits of all projects and compare them.
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The following are a few benefits measurement methods:
- Benefit/Cost Ratio
- Economic Value Added
- Scoring Model
- Payback Period
- Net Present Value
- Discounted Cash Flow
- Internal Rate of Return
- Opportunity Cost
Before we discuss these techniques, it is important for you to understand the Discounted Cash Flow.
Discounted Cash Flow
The value of money received today is greater than the money received in the future.
For example, the value of 10,000 USD after ten years will be far lower than the current value of 10,000 USD.
This phenomenon is known as Discounted Cash Flow.
Therefore, consider Discounted Cash Flow while calculating the return on investment.
Now, let’s get back to benefits measurement methods.
Many experts call this technique the Cost-Benefit Ratio.
It is the ratio between the present value of inflow (cost invested in the project) and the present value of outflow (value of return from the project). You will select the project with a higher Benefit-Cost Ratio (BCR).
Economic Value Added (EVA)
Economic Value Added (EVA) is a performance metric that calculates the value creation for the organization and defines the return on capital (ROC). It is the net profit after deducting all taxes and capital expenditure.
If you have many projects, you will select the one with the higher EVA. Please note that EVA is expressed in dollar value, not a percentage.
This technique is also knowns as Economic Model.
Here, the project selection committee will list a few relevant criteria and weigh them according to their importance. Then they will assign marks for these parameters for each project. Finally, they will add the marks and get the final score.
They will select the project with the highest score.
This is the time required to recover the cost invested in the project.
If other parameters are the same, you will select the project with the minimal payback period.
Net Present Value (NPV)
This is the difference between the current value of cash inflow and the current value of the cash outflow of the project.
Net Present Value should always be positive, and the project with the highest NPV is the better option.
Internal Rate of Return (IRR)
This is the interest rate at which the Net Present Value becomes zero. In other words, it is the rate at which the present value of the outflow is equal to the present value of inflow.
You will select the project with the highest IRR if you have many to choose from.
This is what you lose by choosing another project. You will choose the project with the lower opportunity cost if you have many options.
These are a few of the benefits measurement techniques used in the selection of projects.
Now we come to the constraints optimization methods.
Constraints Optimization Methods
This is also known as the Mathematical Model of project selection and is used for large projects requiring complex calculations.
The following are a few constraints optimization techniques:
- Linear Programming
- Nonlinear Programming
- Integer Programming
- Dynamic Programming
A detailed discussion of these topics is outside of the scope of the PMP certification exam. For the PMP exam, knowing the name of these techniques is enough.
Project selection is the most important process for any organization. The right project helps an organization grow its business and earn recognition. However, a bad one can put a damper on progress and hurt credibility. Project selection techniques help you choose the right project with a better return on investment. Benefits measurement methods are enough for most organizations to reach a decision. You will use constraints optimization methods for large and complex projects.
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