Project Management

Quản lý Dự án
Dr. TRAN QUYNH LE
Dr. NGUYEN DUC DUY
Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–
VNUHCM
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 Chapter 2
Organization Strategy and Project Selection

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 LEARNING OUTCOME

Explain why it is important for project managers to understand their

organization’s strategy.
Identify the significant role projects contribute to the strategic direction of the
organization.
Understand the need for a project priority system.
Distinguish among three kinds of projects.
Describe how the phase gate model applies to project management.
Apply financial and nonfinancial criteria to assess the value of projects.
Understand how multi-criteria models can be used to select projects.
Apply an objective priority system to project selection.
Understand the need to manage the project portfolio.

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Why Project Managers Need to Understand the
Strategic Management Process
▪ Changes in the organization’s mission and strategy
• Project managers must respond to changes with appropriate decisions
about future projects and adjustments to current projects.
• Project managers who understand their organization’s strategy can
become effective advocates of projects aligned with the firm’s mission.

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The Strategic Management Process: An
Overview
▪ Strategic Management
• Provides the theme and focus of the future direction for the firm.
➢ Responding to changes in the external environment—
environmental scanning
➢ Allocating scarce resources of the firm to improve its competitive
position—internal responses to new action programs
• Requires strong links among mission, goals, objectives, strategy, and
implementation.

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Strategic Management Process (cont’d)
▪ Four of Activities of the Strategic Management Process
1. Review and define the organizational mission.
2. Set long-range goals and objectives.
3. Analyze and formulate strategies to reach objectives.
4. Implement strategies through projects

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Strategic Management Process

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 Characteristics of Objectives

S Specific Be specific in targeting an objective

M Measurable Establish a measurable indicator(s) of progress
A Assignable Make the objective assignable to one person for completion

R Realistic State what can realistically be done with available resources

T Time related State when the objective can be achieved, that is, duration

EXHIBIT 2.1

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Example of S.M.A.R.T objective
▪ Example 1: Produce 5 high-quality blog posts every month
• Specific: Schedule compelling posts on the editorial calendar and
publish them regularly.
• Measurable: How many visitors is a post getting? Are they being
converted into customers?
• Attainable: We produced four monthly posts for the past year and have
onboarded a new, experienced blog editor.
• Relevant: 10% of visitors to our blog are converted to paying
customers.
• Time-bound: 30 days is enough to perform keyword research and
publish the content.

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Example of S.M.A.R.T objective
▪ Example 2: Our quality team will increase output by 10 percent this
year by reducing the time spent in checking and streamlining existing
processes.
• Specific: The goal is to increase the number of quality product by 10
percent over the previous year by reducing checking time and making
processes more efficient.
• Measurable: The goal is measurable because the total output of each
year is measurable.
• Achievable: This goal is achievable as long as we can redirect the
team’s time from checking and inefficient processes.
• Relevant: This goal is relevant as a 10 percent increase in output
translates directly to increased profits for the company
• Time-Bound: This goal will be measured at the end of the year.
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Project Portfolio Management (Hồ sơ năng lực)
Problems
▪ The Implementation Gap
• The lack of understanding and consensus on strategy among top
management and middle-level (functional) managers who
independently implement the strategy.
▪ Organization Politics
• Project selection is based on the persuasiveness and power of people
advocating the projects.
▪ Resource Conflicts and Multitasking
• The multiproject environment creates interdependency relationships of
shared resources which results in the starting, stopping, and restarting
projects.

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Benefits of Project Portfolio Management
▪ Builds discipline into project selection process.
▪ Links project selection to strategic metrics.
▪ Prioritizes project proposals across a common set of criteria, rather than on
politics or emotion.
▪ Allocates resources to projects that align with strategic direction.
▪ Balances risk across all projects.
▪ Justifies killing projects that do not support organization strategy.
▪ Improves communication and supports agreement on project goals.

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Portfolio of Projects by Type

Các dự án tuân thủ (PHẢI LÀM)

DỰ ÁN CHIẾN LƯỢC DỰ ÁN VẬN HÀNH

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A Portfolio Management System
▪ Design of a project portfolio system:
• Classification of a project
• Selection criteria depending upon classification
• Sources of proposals
• Evaluating proposals
• Managing the portfolio of projects.

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Project Portfolio Management for a
Transportation Company

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A Portfolio Management System
▪ Selection Criteria
• Financial: payback, net present value (NPV), internal rate of return
(IRR)
• Non-financial: projects of strategic importance to the firm.
▪ Multi-Weighted Scoring Models
• Use several weighted selection criteria to evaluate project proposals.

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Financial Models
▪ The Payback Model
• Measures the time it will take to recover the
project investment.
• Shorter paybacks are more desirable.
• Emphasizes cash flows, a key factor in
business.
• Limitations of payback:
➢ Ignores the time value of money.
➢ Assumes cash inflows for the investment
period (and not beyond).
➢ Does not consider profitability.
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Financial Models
▪ Example:
• Project A has an initial investment of $700,000 and projected cash
inflows of $225,000 for 5 years.
• Project B has an initial investment of $400,000 and projected cash
inflows of $110,000 for 5 years.
• The payback for project A is 3.1 years and for project B is 3.6 years.
• Using the payback method, both projects are acceptable, since both
return the initial investment in less than five years and have returns on
the investment of 32.1 and 27.5 percent.

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Financial Models- Payback Project A
Rate of return: The rate of return is the interest rate that makes the present
worth or annual worth of a cash flow series exactly equal to 0.
0=-700,000+ 225,000(P/A,i*,5)
0 = -700,000 + 225,000 x (1+i*)5 -1 / [i* x (1+i*)5 ]
=> i*=18

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Financial Models (cont’d)
▪ The Net Present Value (NPV) model
• Uses management’s minimum desired rate-of-return (discount rate) to compute
the present value of all net cash inflows.
➢ Positive NPV: the project meets the minimum desired rate of return and is eligible
for further consideration.
➢ Negative NPV: project is rejected.

I0 = Initial investment (since it is an outflow, the number will be negative)

Ft = Net cash inflow for period t
k = Required rate of return
n = number of years

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Net Present Value (NPV) and Internal Rate of Return (IRR):
Example Comparing Two Projects
Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total
MARR 15%
Outflows (700,000.00) - - - - - (700,000.00)
Inflows 225,000.00 225,000.00 225,000.00 225,000.00 225,000.00 1,125,000.00
Net Inflows (700,000.00) 225,000.00 225,000.00 225,000.00 225,000.00 225,000.00 425,000.00
IRR 18%
Payback 3.11
Project A 54,234.90

Project B Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total

MARR 15%
Outflows (400,000.00) - - - - - (400,000.00)
Inflows 110,000.00 110,000.00 110,000.00 110,000.00 110,000.00 550,000.00
Net Inflows (400,000.00) 110,000.00 110,000.00 110,000.00 110,000.00 110,000.00 150,000.00
IRR 12%
Payback 3.64
Project B (31,262.94)

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Project Screening Matrix

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Applying a Selection Model
▪ Project Classification
• Deciding how well a strategic or operations project fits the
organization’s strategy.
▪ Selecting a Model
• Applying a weighted scoring model to bring projects to closer with the
organization’s strategic goals.
➢ Reduces the number of wasteful projects
➢ Helps identify proper goals for projects
➢ Helps everyone involved understand how and why a project is
selected

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Project Proposals
▪ Sources and Solicitation of Project Proposals
• Within the organization
• Request for proposal (RFP) from external sources (contractors and
vendors)
▪ Ranking Proposals and Selection of Projects
• Prioritizing requires discipline, accountability, responsibility, constraints,
reduced flexibility, and loss of power.
▪ Managing the Portfolio
• Senior management input
• The priority team (project office) responsibilities

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Major Project Proposal

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Risk Analysis

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Managing the Portfolio
▪ Senior Management Input
• Provide guidance in selecting criteria that are aligned with the
organization’s goals
• Decide how to balance available resources among current projects
▪ The Priority Team Responsibilities
• Publish the priority of every project
• Ensure that the project selection process is open and free of power
politics.
• Reassess the organization’s goals and priorities
• Evaluate the progress of current projects

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Project Screening Process

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Priority Analysis

FIGURE 2.6

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Project Portfolio Matrix

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Project Portfolio Matrix Dimensions
▪ Bread-and-butter projects
• Involve evolutionary improvements to current products and services.
▪ Pearls
• Represent revolutionary commercial advances using proven
technical advances.
▪ Oysters
• Involve technological breakthroughs with high commercial payoffs.
▪ White elephants
• Projects that at one time showed promise but are no longer viable.

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Exercises

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Key Terms
▪ Balanced scorecard
▪ Implementation gap
▪ Net present value
▪ Payback
▪ Organizational politics
▪ Priority system
▪ Priority team
▪ Project portfolio
▪ Project screening matrix
▪ Sacred cow
▪ Strategic management process
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Additional documents
▪ “No major project is installed on time, within budget, or with the same staff
that started it. Yours will not be the first.”
▪ “Project progress quickly until they become 90% complete, then they
remain at 90% complete forever.”
▪ One advantage of fuzzy project objectives is that they let you avoid the
embarrassment of estimating the corresponding costs and defending the
project success.
▪ “When things are going well, something will go wrong; When things just
cannot get any wrose, they will, When things appear to be going better, you
have overlooked something.”
▪ If project content is allowed to change freely, the rate of change will exceed
the rate of progress
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Additional documents
▪ No system is ever completely debugged. Attempts to debug a system
inevitably introduce new bugs that are even harder to find.
▪ “A carelessly planned project will take three times longer than expected; A
carefully planned project will take only twice as long”
▪ “Project teams detest progress reporting because it vididly manifests their
lack of progress.”

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