Chapter 2
ORGANIZATION STRATEGY AND PROJECT SELECTION
Chapter Outline
1. The strategic management process: an overview
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”.
Strategy describes how an organization intends to compete with the resources
available in the existing and perceived future environment. If management is not
on board with the company’s strategy, problems may occur.
Ex.
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PROVIDING THE STRONGEST AND LIGHTEST FRAMES IN
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If a Project manager was given the responsibility to create the newest
version of buggy frames for the company, and was approached by a
vendor that they will save PM’s company thousands of dollars if they went
with this new metal that is a bit heavier and not as strong as what they are
currently using, but is significantly cheaper. If the PM goes for the money
savings, how will that effect the company’s overall strategy? It will
undermine it!
A. Four activities of the strategic management process
A. Review and define the organizational mission
The mission identifies “what we want to become”. It states the scope of
the organization in terms of its product or service. It provides focus for
decision making when shared by management and employees. Mission
statements typically include the organizations philosophy, key
technologies, public image, and contributions to society. Basically, the
mission sets parameters for developing objectives.
B. Set long-range goals and objectives
Objectives answer in detail “where” the company is headed, and “when”
it is going to get there. It translates the organization’s mission into
specific, concrete, measurable terms. It typically covers markets,
products, innovation, productivity, quality, finance, profitability,
employees, and consumers. Basically, long range goals and objectives
drive the projects.
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Ex. Goal: To provide the consumer with the highest quality prints at a
fraction of the price.
Also, (See pg. 27, fig. 2.1)
C. Analyze and formulate strategies to reach objectives
Formulating strategy answers the question of “what” needs to be done to
reach the objective, and determining/evaluating/selecting the best
alternative to get there. First step is an analysis of “who are the
customers” and “what are their needs”. Second step is to determine what
are the internal strengths and weaknesses of the company, such as
technology, product quality, management talent, etc. Third step is to
understand the opportunities and threats that may be a factor in reaching
the objective.
Example: Opportunity: increase demand, emerging markets, and
demographics.
Threat: slowing economy, exchange rates, and government
regulations.
S – strengths
W – weaknesses
O – opportunities
T - threats
D. Implement strategies through projects
Implementation answers the question of “how” the strategies will be
realized, given the available resources. First, is completing tasks. This
requires the allocation of resources such as funds, people, management
talents, technical skills and equipment. Second, is implementing
organizational authority, responsibility, and performance. Third, is
planning and control. Fourth, is motivating project contributors. Fifth, is
prioritizing projects. Without implementation of these items, success is
very difficult.
2. The need for an effective project portfolio management system
Problem 1: The Implementation gap
This refers to the lack of understanding and consensus of organization
strategy among the project contributors. Symptoms of organizations
struggling with strategy disconnect and unclear priorities are:
A) Conflicts occur, causing lack of trust.
B) Frequent meetings required to re-establish priorities.
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C) Multiple Projects: Team players are confused about which
projects are important.
D) Resources are not adequate.
Problem 2: Organizational politics
Politics exist in every organization and can have a significant influence on
which projects receive funding and high priority. Project selection may
not always be based on facts and sound reasoning, but rather on
persuasiveness and the power of the people advocating the project.
“Sacred Cow” – term often used to denote a project that a powerful, highranking official is advocating…The CEO’s “pet idea”…The VP’s “new
baby”.
Problem 3: Resource conflicts and multitasking
In multi-project environments there are problems with project
interdependency and the need to share resources. This is where
competition among managers become an issue, because all project
managers want the best people for their project. So when a company is
doing well, it takes on more projects, thus creating problems with the
sharing resources and possibly disrupting the overall schedule.
Ultimately, the sharing of resources leads to Multitasking. This is where
people are working on several projects concurrently, which inevitably
leads to confusion and inefficient use of scarce organizational resources.
3. A portfolio management system
The aim of portfolio management is to ensure that projects are aligned with
strategic goals and prioritized appropriately.
Benefits of Project Portfolio Management:
 Builds discipline into project selection process.
 Links project selection to strategic metrics.
 Prioritizes project proposals across a common criteria, rather than on politics.
 Balances risk across all projects.
 Justifies killing projects that do not support organization strategy
 Improves communication and supports agreement on all project goals.
A. Classification of the project
Many companies find they have three different kinds of projects in their
portfolio: Compliance & emergency (must do), Operational, & Strategic.
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Compliance: Projects that need to meet regulatory conditions to operate in a
specific region.
Emergency: Rebuilding a factory after a fire.
Operational: Projects needed to support current operations. Examples are
those designed to improve efficiency, reduce costs, and improve performance.
Strategic: Projects that support the company’s long-term mission. These are
projects that increase revenue or market share.
B. Selection criteria
Typical criteria used in selecting projects are either Financial or NonFinancial
C. Financial models
This is based on estimates of future cash flows. Which project will yield the
company the best or better return. This has proven to be dangerous sometimes
because it is really hard to measure all the factors involved in each project.
D. Non-financial criteria
Although financial return is important, many companies are may go beyond
this and consider supporting projects that do not have high profit margins, but
have more strategic significance to the company.
* To capture the larger market share.
* To make it difficult for competitors to enter the market.
* To develop core technology to be used in next-generation products.
* To reduce dependency on unreliable suppliers.
* To prevent government regulation and intervention.
* To restore corporate image
* To enhance brand recognition.
* To support community development.
4. Two Multi-Criteria Selection Models
Because no single criterion can reflect a company’s strategy, portfolio
management requires multi-criteria screening models.
A. Checklists
The checklist approach basically uses a list of questions to review potential
projects in order to determine either their acceptance or rejection. (See page
35, Exhibit 2.4) However, this approach has its shortcomings. The checklist
may fail to relative value of the project to the company and fails to allow for
comparison with other potential projects. So what happens, is there ends up
being positives and negatives associated with the project. This leaves the door
open to power plays, politics, and forms of manipulation.
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B. Multi-weighted scoring models
Multi-weighted scoring models typically include quantitative and/or
quantitative criteria. Quantitative: assesses the why and how of decision
making. Qualitative: measures how many, how much, and how long. Each
criterion is assigned a weight. Scores are assigned to each criterion based on
importance. Weights and scores are then multiplied to get a total score.
Projects with the higher scores are considered better.
(See page 36, Fig. 2.3 Project Screening Matrix)
7. Applying a selection model
A. Sources and solicitation of project proposals
B. Ranking proposals and selection of projects
8. Managing the portfolio System
A. Balancing the portfolio for risks and types of projects
9. Summary
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