2

Identifying and Selecting Projects

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 Outline
• Project Identification
• Project Selection
• Economic Models for Project Selection
• Project Charter (Project Initiation Document)
• Preparing an RFP
• Soliciting/Requesting Proposals
• Critical Success Factors
• Summary

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 Concepts in this chapter support:
-Project Integration
Project Management
Knowledge Areas from
Management
PMBOK® Guide -Project Procurement
Management

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 Project Identification
• The initiating phase of the PLC 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
• The result of a group of individuals deciding to organize a
project to address a particular need
• Important to clearly identify need to determine if worth
pursuing. Use decision making process to prioritize and
select project with greatest need.
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 Discussion
• In reality, too many
• Why is it important projects are started that
to select the right should never have been.
project before you
• It is wise to take the time
begin working?
to decide which plans to
address identified needs,
problems, or
opportunities should go
forward as a project
before you start working.

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 Project Selection

• Project selection involves evaluating various needs or

opportunities and then deciding which of those should
move forward as a project to be implemented
• The benefits & consequences, advantages &
disadvantages, plusses & minuses of each opportunity
need to be considered and evaluated
• They can be quantitative and qualitative, tangible and
intangible. Each person's decision will be a
combination of quantitative evaluation and "gut"
feelings (intuitions) based upon experience.

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 Economic Models for Project Selection

• Present value
• Net present value
• Internal rate of return
• Payback period
• Cost-benefit analysis

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 Economic Models for Project Selection

• Present Value (PV) (the value today of future cash flows)

• FV=Future value
• i=decimal value of the interest rate for a specific period
• n=number of periods between present and future

• What is the present value of $300,000 received three years

from now if we expect the interest rate to be 10 percent?
Should the answer be more or less than $300,000? (guess without
formula)
• Less. You can put an amount of money less than $300,000 in the
bank and in three years have $300,000.
$300,000/(1+0.01)3=$225,394
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 Economic Models for Project Selection
• Net Present Value (NPV)
• The present value of the total benefits (income or revenue)
minus the costs over many time periods. Calculating the NPV of
each possible project provides a means for the organization to
compare many projects and select the best project to initiate
• The project with the greatest NPV is typically selected

• An organization has two projects to choose from. Project A will

take three years to complete and has an NPV of $45,000.
Project B will take six years to complete and has an NPV of
$85,000. Which one is a better investment?
• Project B. The number of years is not relevant, as it would have
been taken into account in calculation of the NPV.
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 Economic Models for Project Selection
• Internal Rate of Return (IRR)
• The rate at which the project inflows (“revenues”) and project
outflows (“costs”) are equal
• If a company has more than one project in which to invest, the
company may look at the returns of the different projects and
then select the project with the highest return. The higher the
IRR number, the better.
• Payback period
• The length of time it takes for the organization to recover its
investment in the project before it starts accumulating profit
• The shorter the payback period, the better.

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 Economic Models for Project Selection
• Cost Benefit Analysis
• Compares the expected cost of the project to the potential
benefits it could bring the organization
• This analysis results in the calculation of a benefit cost ratio
• A benefit cost ratio 1.5 means the benefits (revenue) the project
brings to the organization are 1.5 times the cost of the initiative

Project A Project B Which project

would you pick?
Net Present Value $95,000 $75,000
IRR 13 percent 17 percent
Payback period 16 months 21 months
Benefit cost ratio 2.7 1.3
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 Project Selection
• The steps in project selection are:
1. Develop a set of criteria against which the opportunity will be
evaluated
• E.g., alignment with company goals; anticipated sales volume; ROI; risks; etc.
2. List assumptions that will be used as the basis for each opportunity
• E.g., if an opportunity is to build an on-site day care center for children 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 opportunity
4. Evaluate each opportunity against the criteria
• It is beneficial to have several individuals involved in the
evaluation & selection decision in order to get a variety of
viewpoints
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 Class Discussion
• Describe the positives and negatives for this development
project.

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 • Positives
Possible responses to • All projects will be evaluated on
Student Discussion common criteria
• Project A gets to market in the least
• Describe the positives time
and negatives for this • Project B gains the greatest market
share
development project. • Project B has highest ROI
• Projects A and C have high chance of
success
• Negatives
• Prices for each project have great
differences; implying that each has a
different level of effort for the
project solution
• Project B has high risk and medium
chance of success
• Project C may not be accepted
globally
• Project B may put the company
reputation at risk if the technology
does not work as expected
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 Project Charter (Project Initiation Document)
•Once a project is selected, it is formally authorized using a
document referred to as a project charter (not a standard format)
Purpose Possible Elements
• Provides sponsor approval • Project title • Milestone
• Purpose schedule
• Commits funding for the • Description • Key assumptions
project • Objective • Constraints
• Summarizes key conditions • Success criteria • Major risks
and parameters or expected • Approval
benefits requirements
• Establishes framework to • Funding • Project manager
develop baseline plan • Major • Reporting
deliverables requirements
• Acceptance • Sponsor designee
criteria
• Approval signature
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 Examine the project
charter and comment on
- the completeness of the
Student Discussion information
- possible evaluation
criteria

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 Possible responses to • Completeness of information
Student Discussion • Describes the project that
needs to be addressed
• Examine the project
• Lists requirements, constraints,
charter and comment on
assumptions, and risks
• Completeness of the
• An RFP could be developed
information
from the charter’s information
• Possible evaluation criteria
• Possible evaluation criteria
• Meets the purpose
• Cost
• Reduces delivery costs by 26%
the first year
• Experience
• Risks
• Appropriate instructional
strategies

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 • The RFP must include the
Discussion customer requirements, which
define specifications and
• What is meant by attributes. Requirements cover
customer size, quantity, color, weight,
requirements? Why speed, performance, and other
must they be precise? physical or operational
parameters that the contractor’s
proposed solution must satisfy.
• These requirements must be very
precise because this is what the
contractor will use as a guideline
as he or she develops the
proposal and/or solution; the
customer may also use it as
acceptance criteria for the project.
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 Preparing a Request for Proposal
• If an organization does not have the expertise or staff capacity to
plan and perform the project or major portions of the project,
outsourcing the work to an external resource (such as a contractor)
is a good choice
• An RFP helps the organization decide which contractor to use
• The purpose of preparing an RFP is to describe comprehensively
project requirements from the customer’s point of view
• Includes need, problem, or opportunity description
• Allows contractors to understand what the customer expects so that
they can prepare a detailed proposal
• Facilitates the development of evaluation criteria
• A formal RFP might not be prepared in many situations. It may also
be communicated informally and verbally, rather than in writing
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 Guidelines for Developing an RFP

• State project objective or • State type of contract

purpose • State payment terms
• Provide a statement of work • State schedule and key
(outlining project scope and tasks) milestones
• Include customer • List format and content
requirements (size, quantity, etc.) instructions (max # of pages)
• State deliverables the • Indicate due date (to submit proposals)
customer expects
• Include evaluation criteria
• State acceptance criteria
• Include level of effort or funds
• List customer supplied items available
• State approvals required by
the customer
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 • It is important to state the approvals
Discussion required during the project so the
• Why would an RFP final solution matches what the
customer expects.
state the approvals
• Examples might include: reviewing
that will be required
the design specifications for a house
during the project? before construction begins,
Give some examples. reviewing a prototype user interface
for a new software system before
coding begins, etc.
• Examples will vary and should
include projects of a sufficient
complexity level where changes as
the project advances could result in
higher costs.
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 Examine the RFP
example. What
Student Discussion additional questions
need to be answered?

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 Possible responses to • Will AJACKS supply the names
Student Discussion of the firms to be surveyed?
• Examine the RFP • What manufacturing
example. What industries are the target?
additional questions • What marketing information
need to be answered? already exists?
• What are the page limitations
for the proposal and
supplemental information?
• What is an acceptable return
rate on the survey?

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 Discussion
• Instructions ensure that
• Why would a all proposals have a
customer give standard form and are
contractors thus easier to evaluate
instructions in the and compare.
RFP to submit their • If instructions were not
proposals according followed, one proposal
to a standard format? might be 5 pages and
another might be 50
pages. One might include
technical specifications
and another might not.

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 Soliciting Proposals
Solicitation Conditions
• Notify potential contractors (as • Requirements are
RFP has been prepared) sometimes communicated
• Identify selected group in verbally instead of via a
advance to send copy of the RFP formal RFP
• Advertise in selected journals, • All RFPs start with
newspapers, or websites identification of a need,
• Maintain competitive situation problem, or opportunity
• Provide same/equal information
to all bidders
• Hold bidders’ meeting to explain
the RFP and answer questions

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 Critical Success Factors
• The need must be clearly defined before preparing a request for
proposal (RFP)
• When selecting a project from among several needs or
opportunities, the decision should be based on which project will
provide the greatest overall benefits compared to its costs and
possible consequences
• Having a well-understood evaluation and selection process and a
well-rounded committee will increase the chances of making the
best project selection decision
• Establish quantitative (measurable) project success criteria, or
expected benefits
• A good RFP allows contractors to understand what the customer
expects so that they can prepare a thorough proposal that
addresses the customer’s needs and requirements
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 Critical Success Factors
• A request for proposal should include a statement of work,
customer requirements, expected deliverables, and the criteria
by which the customer will evaluate proposals
• An RFP should provide instructions for the format and content
of contractor proposals so that the customer will be able to
make a consistent and fair comparison and evaluation of all the
proposals
• Customers must be careful not to provide information to only
some of the contractors because it would give these
contractors an unfair competitive advantage in preparing their
proposals

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 Summary
• Project Identification (recognizing a need, problem, or opp.)
• Project Selection (4 steps: criteria / assumptions / data /
evaluation)
• Economic Models for Project Selection (PV; NPV; IRR; PP; CB)
• Project Charter (Project Initiation Document; Purpose; Possible
Elements)
• Preparing an RFP (while outsourcing projects; Purpose; Possible
Elements)
• Soliciting/Requesting Proposals (notifying contractors; equal info)
• Critical Success Factors
A© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.