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Project Selection (Ch 4)
Dr. James J. Jiang
University of Central Florida
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Learning Objectives
Describe an overall framework for projectselection process
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Strategic Planning and ProjectSelection
Strategic planning involves determining long-termobjectives, predicting future trends, and projecting theneed for new products and services.
Organizations often perform a SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats
As part of strategic planning, organizations should:
A) Identify potential projects.
B) Use realistic methods to select which projects to work on.
C) Formalize project initiation by issuing aproject charter.
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A. Identifying Potential Projects
Its crucial to align IT projects withbusiness strategy.
Supporting explicit business objectives is thenumber one reason cited for investing in ITprojects. Companies with consolidated IT operations have
a 24 percent lower operational cost per end user. The consistent use of IT standards lowers
application development costs by 41 percent peruser.
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Information TechnologyPlanning Process
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Methods for Selecting Projects
There is usually not enough time orresources to implement all projects.
Methods for selecting projects include:
1. Focusing on broad organizational needs.
2. Categorizing information technologyprojects.
3. Performing net present value or otherfinancial analyses.
4. Using a weighted scoring model.
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1. Focusing on BroadOrganizational Needs
It is better to measure gold roughlythan to count pennies precisely.
Three important success criteria forprojects: There is a need for the project.
There are funds available for the project.
There is a strong will to make the projectsucceed.
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2. Categorizing IT Projects
One categorization assesses whether theproject provides a response to: A problem
An opportunity
A directive
Another categorization is based on the
time it will take to complete a project orthe date by which it must be done.
Another categorization is the overall
priorityof the project.
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Financial Analysis of Projects
Financial considerations are often an importantaspect of the project selection process.
Three primary methods for determining the
projected financial value of projects:
Net present value (NPV) analysis
Return on investment (ROI) Payback analysis
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Net Present Value Analysis
Net present value (NPV) analysis is amethod of calculating the expected net monetarygain or loss from a project by discounting allexpected future cash inflows and outflows to thepresent point in time.
Projects with a positive NPV should beconsidered if financial value is a keycriterion.
The higher the NPV, the better.
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Figure 4-2. Net Present ValueExample
Note that
totals areequal, but
NPVs are
not
because ofthe time
value of
money.
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Return on Investment
Return on investment (ROI) is calculated bysubtracting the project costs from the benefitsand then dividing by the costs.
ROI = (total discounted benefits - totaldiscounted costs) / discounted costs
The higher the ROI, the better.
Many organizations have a required rate of
return or minimum acceptable rate of returnon investment for projects.
Internal rate of return (IRR) can by calculatedby setting the NPV to zero.
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Payback Analysis
The payback period is the amount oftime it will take to recoup, in the form
of net cash inflows, the total dollarsinvested in a project.
Payback occurs when the cumulative
discounted benefits and costs are greaterthan zero.
Many organizations want IT projects tohave a fairly short payback period.
Fi 4 4 Ch ti th P b k
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Figure 4-4. Charting the PaybackPeriod
Excel file
http://../PPT%20Originals/Fig4-3.xlshttp://../PPT%20Originals/Fig4-3.xls8/2/2019 Project Selection JJ
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Weighted Scoring Model
A weighted scoring model is a tool that provides asystematic process for selecting projects based onmany criteria.
Steps in identifying a weighted scoring model:1. Identify criteria important to the project
selection process.
2. Assign weights (percentages) to each criterion
so they add up to 100 percent.3. Assign scores to each criterion for each project.
4. Multiply the scores by the weights to get thetotal weighted scores.
The higher the weighted score, the better.
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Sample Weighted Scoring Model forProject Selection
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Problems in Project Portfolios(Added by J.J.)
No link between strategy and projectselection
Poor-quality portfolios (e.g., projects)
Reluctance to kill projects
Scare resources, a lack of focus
Selecting short-term and easy projects
Information overflow (or lack of qualityof information)
Decision making basing on power
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Project Selection Stages
Stage 1: Strategic ConsiderationsPhase
Considering both external and internal business
environments Matching with business strategies
Stage 2: Project Evaluation Phase Economic returns
Risk analysis Other criteria
Stage 3: Project/Portfolio SelectionPhase
Scoring method
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Project Selection Decision Process
Step1: Proposal Submission
Ensure the completeness of proposal Step 2: Assignment of external reviewers (division
managers) Assign each proposal to one or more peer reviewers
Step 3: Peer review (external reviewers/division
managers) Division managers coordinate the process ascoordinators
Validate the peer review results
Step 4: Aggregation of review results (divisionmanagers)
Recommend proposal list for panel evaluation
Step 5: Panel evaluation (department/divisionmanagers & experts)
Suggest a funded list
Step 6: Final decision (top management divisionmanagers)
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Key Success Factors forProject/Portfolio Selection
Centralised view: have and inventory ofcurrent and proposed significant projects
Financial analysis: ROI, NPV, Payback,
Risk analysis: complexity, technology risk,cash flow, organizational changes
Interdependencies among projects
Overall analysis: focus on overall portfolioperformance
Accountability and governance: topmanagement involvement, business leadersaccountable, using regular project portfolio
reporting
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Challenge of Project/PortfolioSelection
Lack of knowledge to evaluate risks
Lack of commitment of business leaders
Lack of cross-functional communication
Lack of a clear company strategy
Lack of appropriate way to measureproject/portfolio benefits
Lack of knowledge of portfoliomanagement techniques