Project Selection is an important part of Project Portfolio Management (PPM). It is sometimes called Pipeline Management. Other sub processes of PPM are Resource Management, Change Control and Risk Management.
A lot of companies struggle with making choices in which projects to invest. Resources are limited. And even if this wasn’t the case for money, it most certainly is the case for qualified staff. So how to decide on which projects to do?
The quick answer: pick those projects that enable you to fulfil the mission of the company.
How can this be done in an objective, tangible way?
There are some prerequisites:
Every company has goals, sometimes these are written down in a mission statement. To achieve her goals a company needs a strategy.
If there is no formal strategy, it’s very hard to do Project Selection or in general PPM in a good way. How can you select projects if you don’t know how to achieve the company’s goals?
There are two common pitfalls: Power and Money.
Sometimes choices are made by sheer powerplay. The person with the most power or influence gets the means to run his projects. No objective arguments, no accountability, just politics.
The second pitfall is focussing on the financials. Every project has to make a financial business case and the most profitable projects are picked. By the way, this is also done in companies that have a formal strategy.
It’s a bit more complex to explain why this is wrong. If a project makes money, it makes sense to do the project. In fact, companies are about making money, aren’t they?
No, they are not. Companies are there to fulfil their goals in a profitable way. By consequence, it is possible to have a project that is less profitable than another project while bringing the company closer to the realisation of its goals.
Financial metrics have their merit. They can make the difference between projects that do contribute to the company’s strategy. Examples are calculating Net Present Value, Benefit/Cost ratio’s, the Economic Value Added (EVA), or using Return On Investment (ROI).
Our advice, keep it simple. The most important rule is to use the same method for all projects. We are mainly interested in the relative ranking of the projects, not in the actual outcome of the metric. At this stage in the projects lifecycle there are so many uncertainties and assumptions, the actual outcome of the metric is not fit to be used in budgets or business plans.
A good methodology to perform the Project Selection process focusses on goals, strategy, risk, and financial metrics to decide which projects to select. It also considers constraints like availability of resources, preferred or imposed timings and some other factors like efficiency.
CDI-Partners promotes using a scoring method, based on the company’s strategy, taking into account some financial metrics as a basis to sort the projects in a relative order. In a second iteration, more practical constraints kick in. Here we consider the constraints as mentioned above.
Legal or other imposed projects can be scored like other projects. After all, complying with legal obligations is a basic goal of every company, is it not?
An example of a project portfolio based on strategy would look like this: