ALIGNING PROJECTS WITH

ORGANIZATION STRATEGY
and PROJECT SELECTION
What is Strategy?
Strategy is fundamentally deciding how the organization will compete.

Historically, it is assumed to be under the control of senior management.

New approach: Project management must get involved in strategy formation.

Project managers need to involve in the organization’s strategy, because:

1. To take necessary decisions & make adjustments,
2. To be effective project advocates.
The Strategic Management Process: An Overview
Strategic Management Defined
Is the process of assessing “what we are” & deciding & implementing “what we
intend to be & how we are going to get there.”
Is a continuous, iterative process aimed at developing an integrated & coordinated
long-term plan of action.
Requires strong links among mission, goals, objectives, strategy, &
implementation.
Four Activities of the Strategic Management Process
The sequence of activities of the strategic management process is:

1. Review and define the organizational mission

The mission identifies “what we want to become.” Mission statements identify the scope of the organization in
terms of its product & service.

2. Analyze and formulate strategies

Formulating strategy answers the question of what needs to be done to reach objectives. Strategy formulation
includes determining & evaluating alternatives that support the organization’s objectives & selecting the best
alternative.

3. Set objectives to achieve strategies

Objectives translate the organization strategy into specific, concrete, measureable terms. Objectives answer in
detain where a firm is headed & when it is going to get there.

4. Implement strategies through projects

Implementation answers the question of how strategies will be realized, given available resources.
Strategic Management Process

Larson EW and Gray CF, Project Management, The Managerial Process, 8 th edition. 2021, McGraw Hill.
Mission Statement examples
Bilkent FBA:
To serve academic & business communities locally & globally through creation of knowledge &
education of professionals in business administration.
Aselsan:
By focusing primarily on the needs of the Turkish Armed Forces; to provide high-value-added,
innovative and reliable products & solutions to both local & foreign customers in the fields of
electronic technologies & system integration; continuing activities in line with global targets as well
as increasing brand awareness & contributing to the technological independence of Turkey.
Arçelik:
Increasing quality of life by providing innovative, environmentally friendly, reliable,
technologically advanced product’s to create value for our stakeholders.
Yapı Kredi:
To ensure long-term sustainable growth value creation for all stakeholders, and become the first
choice of customers & employees.
Characteristics of Objectives

Larson EW and Gray CF, Project Management, The Managerial Process, 8 th edition. 2021, McGraw Hill.
Why Project Managers Need to Understand Strategy?
Two main reasons project managers need to understand their organization’s
mission and strategy:

1. So they can make appropriate decisions & adjustments.

How a project manager would respond to a suggestion to modify the design of
a product or to delays may vary depending upon strategic concerns.

2. So they can be effective project advocates. They have to be able to:

demonstrate to senior management how their project contributes to the firm’s mission in
order to garner their continued support.
explain to stakeholders why certain project objectives & priorities are critical in order to
secure buy-in on contentious trade-off decisions.
explain why the project is important to motivate & empower the project team.
The Need for a Project Priority
System
Implementation of projects without a strong priority system linked to strategy
create problems.

Problem 1: The Implementation Gap

The implementation gap is the lack of understanding & consensus of organization strategy among top &
middle-level managers.

Problem 2: Organization Politics

Project selection may be based not so much on facts & sound reasoning as on the persuasiveness & power
of people advocating projects.

Problem 3: Resource Conflicts and Multitasking

A multi-project environment creates problems of project interdependency & need to share resources.
Resource sharing leads to multitasking—involves starting & stopping work on one task to go & work on
another project, then returning to the work on the original task.
Resistance to Central Project Portfolio Management System
Some typical responses:
1. We already have a priority system. All of our projects are very important.
2. Come on. We all know which projects have first priority.
3. Our business world changes each day. We don’t need a system that locks
us out of opportunities. Priorities change.
4. Let’s not rock the boat. We’re getting along. The cream projects always
rise to the top.

Larson EW and Gray CF, Project Management, The Managerial Process, 2nd edition. 2003, McGraw Hill.
 Benefits of Project Portfolio Management

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Project Classification

Larson EW and Gray CF, Project Management, The Managerial Process, 8 th edition. 2021, McGraw Hill.
Project Selection Models
1. Non-numeric models
The Sacred Cow
Operating Necessity
Competitive Necessity
Product Line Extension
Comparative Benefit Model

2. Numeric models
Financial criteria (Payback, NPV)
Non-financial criteria
Multi-criteria (Checklist, multi-weighted scoring)
Financial Criteria: The Payback Model
The Payback Model
Measures the time the project will take to recover the project investment.
Desires shorter paybacks.
Is the simplest & most widely used model.
Emphasizes cash flows, a key factor in business.
Limitations of the Payback Method
Ignores the time value of money.
Assumes cash inflows for the investment period (and not beyond).
Does not consider profitability.
The Payback formula is:
Example Comparing Two Projects Using Payback Method

Larson EW and Gray CF, Project Management, The Managerial Process, 8 th edition. 2021, McGraw Hill.
Financial Criteria: Net Present Value (NPV)
Net Present Value (NPV)
Uses management’s min desired rate of return (discount rate, hurdle rate) to compute the present
value of all net cash inflows.
Prefers positive NPV to negative NPV.
Desires higher positive NPVs.
Is more realistic because it considers the time value of money, cash flows, & profitability.

The NPV formula is: where

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
 Example Comparing Two Projects Using Net Present Value Method

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Advantages and disadvantages of Financial Models

Advantages:

The undiscounted models are simple to use and understand

All use readily available accounting data to determine cash flows

Model output is in terms familiar to business decision makers

With a few exceptions, model output is on an “absolute” profit/profitability scale

and allows “absolute” go/no-go decisions

Some profit models can be amended to account for project risk

Advantages and disadvantages of Financial Models

Disadvantages:
These models ignore all nonmonetary factors except risk

Models that do not include discounting ignore the timing of the cash flows and the time value of money

Models that reduce cash flows to their present value are strongly biased toward the short run

Payback-type models ignore cash flows beyond the payback period

The IRR model can result in multiple solutions

All are sensitive to errors in the input data for the early years of the project

All discounting models are nonlinear, and the effects of changes (errors) in the variables or parameters
are generally not obvious to most decision makers
Nonfinancial Criteria
Examples of strategic objectives are:

To capture larger market share.

To make it difficult for competitors to enter the market.

To develop an enabler product, which by its introduction will increase sales in more profitable

products.

To develop core technology that will be used in next-generation products.

To reduce dependency on unreliable suppliers.

To prevent government intervention & regulation.

Nonfinancial Criteria
Examples of less tangible objectives are:

Projects to restore corporate image

Projects to enhance brand recognition

Projects to support community development.

Sacred cows
Multi-Criteria Selection Models

1. Checklist Models

Use a list of questions to review potential projects & to determine their

acceptance or rejection.

Allow greater flexibility in selecting among many different types of projects &
are easily used across different divisions & locations.

Fail to answer the relative importance or value of a potential project to the

organization & does not allow for comparison with other potential projects.
 Checklist Models: Sample Selection Questions Used in Practice

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Multi-Criteria Selection Models
Checklist Models (shortcomings)

Each project will have different sets of (+) and (-) answers. How do you
compare?

Ranking projects by their importance is difficult.

Potential opportunity for power plays, politics, & other forms of manipulation.
Multi-Criteria Selection Models

2. Multi-Weighted Scoring Models

Use several weighted selection criteria to evaluate project proposals.

Include qualitative and/or quantitative criteria.

Allow for comparison with other potential projects.

Multi-Weighted Scoring Models: Project Screening Matrix

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Applying a Selection Model
Deciding if the project fits with the organization strategy.

Selecting a Model:

Weighted scoring criteria seem the best alternative because:

They reduce the # of wasteful projects using resources.
Politics and sacred cows are exposed.
They help to identify project goals that can be communicated using the selection criteria as
corroboration.
They help project managers understand how their project was selected, how their project
contributes to organization goals, & how it compares with other projects.
Applying a Selection Model (Continued)
Sources and Solicitation of Project Proposals

Within the organization

Request for Proposal (RFP) from external sources (contractors/vendors)

Ranking Proposal and Selection of Projects

Evaluating each proposal in terms of feasibility, potential contribution to strategic

objectives, and fit within a portfolio of current projects.

Rejecting or accepting the projects based on given selection criteria and current portfolio.

Prioritizing projects by senior management.

A Proposal Form for an Automatic Vehicular Tracking (AVL)
Public Transportation Project

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Risk Analysis for a 500-Acre Wind Farm

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Project Screening Process

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Priority Screening Analysis
(An example of an Evaluation Form)

Larson EW and Gray CF, Project Management, The Managerial Process, 8th edition. 2021, McGraw Hill.
Managing the Portfolio System
Senior Management Input
Provides guidance in establishing selection criteria that strongly align with the current organization
strategies.
Annually decides how to balance the available organizational resources (people and capital) among the
different types of projects.
Governance Team (Project Office) Responsibilities
Publish the priority of every project.
Ensure the selection process is open & free of power politics.
Evaluate the progress of current projects.
Constantly scan the external environment to determine if organization focus and/or selection criteria need to
be changed.
Balancing the Portfolio for Risks and Types of Projects
Projects must be balanced by (i) type, (ii) risk, (iii) resource demand.

Balancing the portfolio of projects is as important as selecting projects.

The four basic types of projects are:

Bread-and-butter projects involve evolutionary improvements to current products and services. (Software upgrades,
manufacturing cost-reduction)

Pearls represent revolutionary commercial advances using proven technology. (Next-generation integrated circuit chips,
subsurface imaging to locate oil & gas)

Oysters involve technological breakthroughs with tremendous commercial potential. (embryonic DNA treatments, new kinds
of metal alloys)

White elephants showed promise at one time but are no longer viable. (products for a saturated market, energy source with
toxic side effects)
Balancing the Portfolio for Risks and Types of Projects

Literature shows that organizations often have too many white elephants and too
few pearls and oysters.

Recommendation is to capitalize on pearls, eliminate or reposition white

elephants, & balance resources devoted to bread-and-butter and oyster projects to
achieve alignment with overall strategy.
References
Larson EW and Gray CF, Project Management, The Managerial Process, 8 th edition. 2021, McGraw Hill.

Meredith JR, Shafer SM, and Mantel SJ, Project Management, A Strategic Managerial Approach, 10 th edition,
2018, Wiley.