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Why Project Managers Need to Understand Strategy

• IT projects must align with the organization's mission, strategy, culture, and practices.
• Project managers that understand business strategy can make appropriate decisions and adjustments and be effective project advocates.

Strategic Management Process

• Strategic management is assessing the current state "what we are" and deciding and implementing the plan to achieve the desired future state.
• It is a continuous, iterative process for developing an integrated and coordinated long-term plan of action.
• Strategic management requires strong links among mission, goals, objectives, strategy, and implementation.
• Two major dimensions: Responding to changes in the external environment and allocating scarce resources to improve the firm's competitive position & internal responses to new action programs enhancing the firm's competitive position.

Four Activities of the Strategic Management Process

• Reviewing and defining the organizational mission, which describes what the organization wants to become.
• Components of a mission statement: major products/services, target customers/markets, geographical domain, organizational philosophy, key technologies, public image, and societal contribution.
• Analyzing and formulating strategies involves determining what needs to be done to reach objectives.
• Steps consist of a realistic evaluation of the past and current position of the enterprise and an assessment of the internal and external environments.
• SWOT analysis is a common method involving strengths (internal, positive), weaknesses (internal, negative), opportunities (external, positive), and threats (external, negative).
• Setting specific, measurable, assignable, realistic, and time-related objectives to achieve strategies.
• Implementing strategies through projects, considering how strategies will be realized with available resources. Project Portfolio Management, and prioritizing projects is key.

The Need for a Project Priority System

• Without a proper priority system, there can be behavioral biases like optimism and uniqueness bias.
• This can lead to an implementation gap due to a lack of understanding and consensus of organization strategy among managers.
• Organization politics, such as protecting "sacred cows," and resource conflicts with multitasking can also hinder project success.

Project Portfolio Management

• Project Portfolio Management (PPM) is a means of monitoring and controlling the organization's strategic projects.
• PPM directly links projects to the goals and strategy of the organization.
• Seven common characteristics of highly successful strategic projects include creating a unique competitive advantage/value for stakeholders.
• PPM needs a long period of project definition dedicated to defining a powerful vision and successful execution.
• It creates a revolutionary project culture, requires a highly qualified project leader supported by management.
• PPM maximizes use of existing knowledge (often with outside organizations).
• PPM uses integrated development teams with fast problem-solving and adaptability.
• Benefits of PPM include building discipline in project selection, linking project selection to strategic metrics, and prioritizing projects based on criteria.
• PPM allocates resources to projects that align with strategic direction and balances risk across projects.
• PPM justifies ending projects that do not support the organization's strategy, improving communication and agreement on project goals.

Project Classification

• Projects can be classified as strategic, operational, or compliance (must do).

Phase Gate Model

• In this model, a project must pass through a series of gates to completion.
• Designed to ensure the organization invests time and resources in worthwhile projects aligned with its mission and strategy.
• Each gate is associated with a project phase and represents a decision point.
• Each gate can lead to three possible outcomes: go (proceed), kill (cancel), or recycle (revise and resubmit).

Financial Criteria

• The Payback Model measures the time to recover the project investment, favoring shorter paybacks.
• However, it ignores the time value of money, cash inflows beyond the investment period, and profitability.
• Net Present Value (NPV) uses management's desired rate of return to compute the present value of all net cash inflows, preferring higher positive NPVs.
• NPV considers the time value of money, making it more realistic.

Non-Financial Criteria

• Strategic objectives include: capturing a larger market share, deterring competitors, developing enabling/next-generation products, reducing dependency on unreliable suppliers, and preventing government intervention.
• Two Multi-Criteria Selection Models: Checklist and Multi-Weighted Scoring Models.
• Checklist Models use a list of questions to review potential projects, offering flexibility and ease of use across different divisions and locations.
• Checklist Models fail to address relative project importance or value or allow for comparison with other projects.
• Multi-Weighted Scoring Models use several weighted selection criteria (qualitative and/or quantitative) to evaluate project proposals.

Applying a Selection Model

• Applying a selection model requires deciding whether the project fits with the organization's strategy and then selecting the appropriate model.
• Weighted scoring criteria is preferable because these reduce wasteful projects, help identify project goals that can be communicated.
• It also helps project managers understand how their project contributes to organizational goals.
• Sources of proposals: can come from sources within the organization, or submitted via a Request for Proposal (RFP) from external sources.
• Ranking Proposal and Selection of Projects: involves evaluating each proposal on feasibility, strategic contribution, and portfolio fit; rejecting/accepting projects based on the selection criteria and current portfolio; and prioritizing projects by senior management.

Managing the Portfolio System

• Senior Management Input provides guidance in establishing selection criteria aligned with current organization strategies.
• Senior Management annually decides how to balance resources among different project types.
• Governance Team Responsibilities: include publishing project priorities, ensuring a selection process that's open and free of power politics, evaluating progress, and scanning the external environment for changes.
• Balancing the Portfolio for Risks and Types of Projects: involves a classification scheme for R&D organizations.
• Portfolio projects can be classified as bread-and-butter (evolutionary improvements), pearls (revolutionary commercial advances), oysters (technological breakthroughs), and white elephants (showed early promise but of no value).
• Risk considerations in project selection include both costs and benefits and uncertainty around timing, accomplishments, and side effects.