Identifying and Selecting Projects

Project Identification
The initiating phase of the project life cycle starts with recognizing a need, problem, or
opportunity for which a project or projects are identified to address the need. Projects are
identified in various ways: during an organization’s strategic planning, as part of its normal
business operations, in response to unexpected
events, or as a result of a group of individuals deciding to organize a project to address a
particular need.

Business strategies can be driven by the market opportunities, competition, and/or technology.

For example, there may be an emerging market opportunity for a project to develop a new
educational product for preschool-age children. Or a company that is losing market share to a
competitor may need a project to redesign its product in order to incorporate the latest
technology and more customer-friendly features. Another business may see a rapidly growing
market for its products in Asia, and thus it identifies a project to build a factory in India to meet
the demand for its products. Not-for-profit organizations or associations can also
define strategies to advance their mission. Based on a survey of its members, a
national association may need a project to develop a new website to better serve its members. A
philanthropic foundation may want to address a critical health care need in a particular country
and therefore identifies a project to build a clinic.

Projects can also be identified as part of a company’s normal operational or maintenance needs.
As an example, a business needs to reduce its indirect costs and identifies a project to consolidate
its office space from several locations into one. In order to reduce the risk of noncompliance with
new government regulations, a company identifies a project to install a new wastewater
treatment system.

There are circumstances when projects are identified as a result of unexpected events, such as an
earthquake that caused the collapse of a bridge, that create the need for a project to be undertaken
—in this case, to build a new bridge. Another situation would be if a fire destroyed an
elementary school, and projects were needed to determine how to continue to provide instruction
for the students and to build a new school.

In some cases, volunteers may come together and decide they want to do a project for a
particular reason. It could be to raise funds for a local food bank or to organize a festival to
celebrate the anniversary of the town’s founding.

Projects are identified in various ways by different organizations. It is important to clearly define
the need. This may require gathering data about the need or opportunity to help determine if it is
worth pursuing. For example, if a company needs to change the layout of its manufacturing
facility to make room for new production equipment that has to be incorporated into the
production flow, the manufacturing manager may simply ask one of the supervisors to put
together a proposal for “what it’s going to take to reconfigure the production line.” Or if
a business wants to pursue a new market for one of its products, it may first conduct a market
assessment or survey. It is important to try to quantify the need to help evaluate whether the
expected benefits from  implementing a project outweigh the costs or consequences of
conducting the project. Once the magnitude of the expected benefit or improvement has been
estimated, the organization needs to estimate the cost for a project to implement the
improvement. For example, if a business estimates that it could save $100,000 a year by
reducing its scrap rate from 5 percent to 1 percent, it might be willing to make an investment of
$200,000 for new automated production equipment, thus breaking even after two years of
operation. However, the business may  not be willing to spend $500,000 for a solution.
Businesses have a limited amount of funds available and, therefore, usually want to spend those
funds on projects that will provide the greatest return on investment or overall benefit. 

Sometimes organizations identify several or many needs but have limited funds and people
available to pursue potential projects to address all of those needs. In such cases, the company
must go through a decision-making process to prioritize and select those projects that will result
in the greatest overall benefit.

Identifying and Selecting Projects

Project Selection
Project selection involves evaluating potential projects, and then deciding which of these should
move forward to be implemented. The benefits and consequences, advantages and disadvantages,
plusses and minuses of each project need to be considered and evaluated. They can be
quantitative and qualitative, tangible and intangible. Quantitative benefits could be financial,
such as an increase in sales or a reduction in costs. There also may be intangible
benefits associated with a project, such as improving the company’s public image or employee
morale. On the other hand, there are quantitative consequences associated with each project, such
as the cost required to implement the project or disruption to work throughput while the project
is being implemented. Some consequences may be less tangible, such as legal barriers or reaction
from a particular advocacy group.

The steps in the project selection process include:

1. Develop a set of criteria against which the project will be evaluated. These criteria will be
used to evaluate potential projects and support project selection and probably include both
quantitative and qualitative factors. For
example, if a pharmaceutical company has identified several potential projects to develop new
products, it might evaluate each potential project against the following criteria:

• Alignment with company goals

• Anticipated sales volume
• Increase in market share
• Establishment of new markets
• Anticipated retail price
• Investment required
 • Estimated manufacturing cost per unit
• Technology development required
• Return on investment
• Human resources impact
• Public reaction
• Competitors’ reaction
• Expected time frame
• Regulatory approval
• Risks

Sometimes the potential projects may not all be similar, such as several alternative new products.
They could be very different and all compete for a company’s limited funds. One project may be
to put a new roof on the factory,
another to implement a new information system, and a third to develop a new product to replace
one that is outdated and for which sales are rapidly declining.

2. List assumptions that will be used as the basis for each project. For example, if one project is
to build an on-site day care center for children and elderly relatives of company employees, one
assumption might be that the company would be able to obtain a bank loan to build such a
center. 

3.  Gather data and information for each project to help ensure an intelligent decision
regarding project selection. For example, it may be necessary to gather some preliminary
financial estimates associated with each project, such as estimated revenue projections and
implementation and operating costs. These data may then be analyzed using certain
mathematically based financial models so that the projects can be compared on an equal
basis. Such financial or economic models can include methodologies used to calculate simple
payback, discounted cash flow, net present value, internal rate of return, return on investment, or
life cycle costs associated with each project being considered.

In addition to gathering quantitative data, it may also be necessary to obtain other information
regarding each potential project. This could include getting information from various
stakeholders who would be affected by the project. These stakeholders could be employees,
consumers, or community residents, depending on the specific project. Methods of gathering this
information could include surveys, focus groups, interviews, or analysis of available reports. For
example, if the projects being considered have to do with introducing several alternative food
preparation products into the market, it may be valuable to conduct some focus groups with
consumers to determine their needs and preferences. In the case of building an on-site day care
center, it may be worthwhile to survey employees to determine how many employees would use
the day care center for children or elderly relatives, and how often (all day, second shift, before
or after school), ages of children, the health care needs of elderly relatives, and so forth.

4.  Evaluate each project against the criteria. Once all the data and information have been
collected, analyzed, and summarized for each potential project, they should be given to all the
individuals who are responsible for performing the evaluation. It is beneficial to have several
individuals involved in the evaluation and selection process in order to get various viewpoints.
Each person on the evaluation and selection team or committee should have a different
background and experiences to bring to the decision-making process. There may be someone
from marketing who knows consumer preferences; someone from finance who knows costs and
the company’s
financial condition; someone from production who understands what process and equipment
changes may be needed; someone from research and development who can provide expertise on
how much additional technology
development may be required; and someone from human resources to represent any impact on
the workforce or the community.

Identifying and Selecting Projects

Project Charter
Once a project is selected, it is formally authorized using a document referred to as a project
charter, sometimes called a project authorization or project initiation document. In this
document, the sponsor provides approval to go forward with the project and commits the funding
for the project. The project charter also summarizes the key conditions and parameters for the
project and establishes the framework for developing a detailed baseline plan for performing the
project. The content and format of the charter or authorization is not standard, but
varies depending on the company or organization. It usually includes many of the following
elements:

1. Project title
2. Purpose
3. Description
4. Objective
5. Success criteria
6. Funding
7. Major deliverables
8. Acceptance
9. Milestone schedule
10. Key assumptions
11. Constraints
12. Major risks
13. Approval requirements
14. Project manager
15. Reporting requirements
16. Sponsor designee
17. Approval signature and date

The project charter is an important document. It not only authorizes going

forward with a project but also provides the key conditions and parameters that are the
framework for the project manager and team to develop a detailed baseline plan for performing
the project.
Identifying and Selecting Projects

Preparing a Request for Proposal

In some cases, an organization does not have the expertise or staff capacity to
plan and perform the project or major portions of the project, and therefore it
decides to outsource the work to an external resource (contractor). A request
for proposal (RFP) is a document, prepared by the sponsor/customer, which
defines the project requirements and is used to solicit proposals from potential
contractors to do the project. A proposal is a document that includes a proposed approach,
schedule, and budget for meeting the project requirements and accomplishing the project scope.

A good RFP allows contractors to understand what the customer expects so that they can prepare
a thorough proposal that will satisfy the customer’s
requirements at a realistic price. For example, an RFP that simply requests contractors to submit
a proposal for building a house is not specific enough. Contractors could not even begin to
prepare proposals without information about the kind of house that is wanted. An RFP should be
comprehensive and provide sufficiently detailed information so that a contractor or project team
can prepare an intelligent proposal that is responsive to the customer’s needs. 

Following are some guidelines for drafting a formal RFP to external

contractors:

1. The RFP must state the project objective or purpose.

2. An RFP must provide a statement of work (SOW).
3. The RFP must include the customer requirements.
4. The RFP should state what deliverables the customer expects the contractor to provide. 
5. The RFP should state the acceptance criteria
6. The RFP should list any customer-supplied items.
7. The RFP might state the approvals required by the customer.
8. Some RFPs mention the type of contract the customer intends to use.
9. An RFP might state the payment terms the customer intends to use.
10. The RFP should state the required schedule for completion of the project and key
milestones.
11. The RFP should provide instructions for the format and content of the
contractor proposals.
12. The RFP should indicate the due date by which the customer expects
potential contractors to submit proposals.
13. An RFP may include the evaluation criteria such as: 
o contractor's experience with similar projects
o technical approach used by the contractor
o schedule
o costs
14. In rare cases, an RFP will indicate the funds the customer has available to spend on the
project.
Identifying and Selecting Projects

Soliciting Proposals
Once the RFP has been prepared, the customer solicits proposals by notifying
potential contractors that the RFP is available. One way for customers to do this is by identifying
a selected group of contractors in advance and sending each of them a copy of the RFP. For
example, a customer who has prepared an RFP for designing and building a customized piece of
automated testing equipment might send it to several well-known companies (contractors) that
specialize in producing such equipment. Another approach to soliciting potential contractors is
for the customer to provide information on certain websites and in relevant business newspapers
that the RFP is available and give instructions on how interested contractors can obtain or
download a copy. For example, federal government agencies announce their RFPs on the Federal
Business Opportunities website.

Business customers and contractors consider the RFP/proposal process to be a

competitive situation. Customers should be careful not to provide one or more of the contractors
with information that is not provided to all interested contractors. Therefore, during the proposal
development phase, customers may not want to answer questions from individual contractors
who are preparing proposals for fear of giving those contractors an unfair competitive advantage
over other contractors who do not have the same information. Business or government customers
may hold a bidders’ meeting to explain the RFP and answer questions from interested
contractors.

It must be noted that not all project life cycles include the preparation of a
written RFP by a customer and subsequent submittal of proposals from contractors. Some
endeavors move right from the initiating phase where a project is identified and selected into the
planning and performing phases of the life cycle. This process bypasses the RFP and proposal
steps. For instance, when a company decides to initiate and implement a project to meet a certain
need or solve a particular problem, it may use its own staff and project team rather than external
contractors. Or when a group of volunteers decides to put on a countywide weeklong arts
festival, the volunteers may elect to do all the work themselves. When an accident victim
requires a series of reconstructive surgeries, a team of surgeons may determine what needs to be
done and then plan and perform a series of operations spanning several years. In all these
examples, requests for proposals from contractors would not be appropriate.

There are other projects in which requirements are not written down in a formal RFP, but are
communicated to several providers or suppliers (contractors). For example, in planning a
wedding, the bride and groom may define their requirements for the reception, dinner, flowers,
and other items and then shop around to select the providers that most closely match their
requirements and budget. 

Although projects can be businesslike or informal, they all start with the identification of a need,
problem, or opportunity and then proceed to the sponsor defining (in writing or verbally) the
scope, requirements, budget, and schedule for what is to be accomplished.