Project selection is indeed an important task in project management. But what is project selection anyways?
In this guide, we’ll explore all about project selection, its methods, important factors, processes, and some of its models.
What is project selection in project management?
Project selection in project management refers to the process of choosing the next possible plan of action for your team. It is one of the crucial stages for an enterprise. Selecting the right project isn’t all about luck, as most of us might think. It is more about knowing the right processes to select a project.
There are various determinants that one should take into consideration before choosing the next project. Once the selection has been made, the next step is to create a project plan and outline all the project stages.
Who is responsible for project selection?
Now that we’ve got a hint on what is project selection, let’s see who is responsible for this task in an enterprise.
Project selection is typically done by the executives of the company. However, the project manager also plays a pivotal role in highlighting the benefits and shortcomings of the project under discussion.
Project Manager’s responsibilities in project selection
A project manager is not only responsible for overseeing the whole project development stages but also for selecting the best fit project for the company.
Therefore, he must be aware of what is project selection and his role in it. Since he is better able to predict the risks and resources. A project manager works in the field, thus, his responsibilities in project selection include:
- Know the capabilities of his team to determine if they can execute the project or not.
- Estimate the time, budget, and resources needed for the project.
- Act as a liaison between the team and the executives.
- Understand the shortcomings and benefits of the project to the goals of the company.
- Be bold enough to voice his opinion.
- Make sure that the project isn’t overburdening the team.
The next step is to create a project plan. The project manager should be well aware of how to create a project plan.
Four important factors in project selection
Four main factors should be considered in making the right project selection. These include:
- Time- It is to determine if your company has the time to finish the project within the given timeline or not.
- Budget- Are there any budget constraints?
- Resources- Are there enough resources to execute the project or not?
- Risks- What are the possible risks?
Project Selection Methods
Now let’s have a look at what is project selection method in project management. There are two main project selection methods.
- Constrained Optimization: It focuses on and prioritizes numerical and mathematical advantages.
- Benefits Measurement: It focuses on opportunity costs and payback periods.
What is project selection by using the constrained optimization method?
The constrained optimization method uses quantitative methods like complex mathematical concepts as a project selection process. It is best suited for large-scale and complex projects.
Some typical examples of contained optimization methods are:
1. Integer Programming
In this method, the integer value of the product is given preference over the fractional value. For example, producing a certain product like computers can never be fractional.
2. Linear Programming
It is a method where the overall cost of the project is reduced by reducing the time spent on each activity. The project is either run at the normal time or crash time. For example, you can sell more products if you make them faster within the same period.
3. Dynamic Programming
In this method, the complex project is broken down into simpler problems. Various techniques are used to solve a problem in this method. Thus, instead of building a computer, the company will break it down to build several parts that would add up to the development of the whole computer.
4. Nonlinear Programming
It involves maximizing a given variable in a situation when other variables aren’t linearly tied to it. Thus, for example, if you’re increasing the number of computers produced as mentioned in the above example then you should also take into consideration the tariffs and costs of expired bulk shipping.
5. Multiple Objective Programming
This method is a combination of all of the above. Mathematical calculations help you optimize your decisions. For example, you create equations that define the time and cost of the products in making each computer and make appropriate adjustments accordingly.
What is project selection by using the benefits measurement method?
The benefit measurement method uses numbers to describe the daily operations of the business. Factors such as opportunity costs and NPV can be taken into consideration for making decisions.
1. Benefit-cost analysis
In this method, the costs of the project are compared with their benefits. Let’s take an example to understand it more. Suppose that you plan on opening a restaurant in a location. The cost of inventory, training, hiring, and renovations are all considerable.
However, a new location will benefit your restaurant in terms of revenue. Therefore, increased brand value and rate of return are more beneficial than the cost.
2. Payback period
The payback period is the time that is needed to get the return on the initial investment. Most of the time, companies tend to choose projects with shorter payback periods rather than longer ones. However, always take into consideration the incoming potential of the project.
For example, for a restaurant, the payback period will depend on the reconstruction, hiring, training or inventory. This can take a longer period as well due to many unknown factors. However, the potential payback of it would be high due to its new location and increased sales. Thus, the investment must be compared with the payback you’re going to receive while selecting a project.
3. Discounted cash flow analysis
More often than others, the project doesn’t pay what we expect. It can be affected due to many factors like inflation or a sudden decline in the demand for the product. Therefore, one must consider these factors while selecting a project.
Suppose the restaurant is located near the university. You can make money out of students. However, you must consider that during vacations and other public holidays your sales might drop more than usual.
3. Net present value
Net present value can be calculated with a relationship between the present cost of the project and its rate of investment (ROI).
The project with a higher NPV is better selected than with a lower one. In NPV the discounted cash flows are also taken into consideration to make a wise decision.
So, for your restaurant, you’ve two locations in mind. The first location provides you with a fixed rate of return that $6000 every year compared to your investment of $12000. While the other location pays you $6000 in one year and $12000 in the second year. In this scenario, you might want to choose the second location due to its faster rate of return.
4. Opportunity cost
The term opportunity cost refers to choosing some profit and giving up on another profit. This is a tough choice to make. However, you can weigh the long-term benefits to make a considerable choice.
For example, if you plan on moving your expert chef to a new location, it might reduce the quality of food served in your old restaurant but would benefit to retain customers in the new one.
5. Economic model
The economic model takes into account the financial value that would be added to the organization with the selection of a certain project.
In our example, the new restaurant will surely increase assets, cash flows, and rate of return for the owner.
6. Non-financial constraints
It’s always good to remain prepared for the unknown as well. Non-financial constraints include all those factors that might affect the project but can’t be calculated. For example. Political impact, environmental impact, cultural impact, etc.
For example, your old restaurant was in a cold location and so your menu was designed accordingly. However, the new location is rather hot. Thus, you’ve got to rethink the menu and make sure it aligns with the expertise of your chef as well.
7. Internal rate of return
Lumen Learning defines the internal rate of return as the “rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.”
In our example, suppose that we need a new set of couches for the restaurant. The cost of the couches is $500 and our annual savings are $150. Now, dividing the initial cost by the annual saving per year, the IRR you get is 3.33 percent.
8. Scoring models
In this method, numerical values are assigned to select the project that weighs more benefits. You can create a sheet or table to weigh various projects and select the one that best suits your organization.
For example, suppose that your organization needs to choose between opening a new restaurant or hiring more staff. You’re going to score both projects and choose the one that provides more benefits.
What is a Project Selection Process?
The project selection steps for each organization might differ from one another. However, some of the most common steps involved in the project selection process are:
1. Identify Potential Projects
In this stage, you’ll make a list of all the projects in the pipeline to help you weigh the benefits and shortcomings of each one of them accurately.
2. Compare the Projects
Once you’ve made a list of all the potential projects, compare the costs and benefits of each one of them. You can do it by assigning values to each and comparing the total scores in the end.
3. Analyze your findings
Now it’s time for analyzing the findings that you’ve made. The project with the highest positive score can be regarded as having the most potential in comparison to the lowest negative one.
4. Select the project
It’s time to select the project that best suits the needs of your business and maintains the highest benefits in comparison to all other projects.
What Are Project Selection Models?
There are various numeric and non-numeric models for effective project selection.
Here are some examples of project selection models
1. Comparative Benefit
As the name suggests, this selection model compares various projects and highlights the best ones among them.
2. Competitive Necessity
In this model, the project is selected to increase the competitive edge of the business.
3. Operating Necessity
The project is deemed important to the continued operations of the business.
4. Product Line Extension
The project expands on the existing line of business.
5. Sacred Cow
In this model, the higher executives like the CEO support the project.
To conclude, project selection isn’t only about picking the best project by luck. You can increase the odds of selecting the right project by following the right processes. Therefore, choose the method that best suits your team to increase scalability.