Module 2: Project Feasibility and Selection
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Questions and Answers

What is a fundamental aspect of project selection in relation to organizational strategy?

  • Prioritizing projects based on employee preference
  • Ensuring projects align with overall objectives (correct)
  • Choosing projects based solely on cost efficiency
  • Selecting all available projects within a budget

    • Which of the following best describes the essence of strategy in a business context?

  • An operational guideline for daily tasks
  • A series of random business actions
  • A fixed plan that never changes
  • A process centered on making choices (correct)

    • How does strategic thinking influence leadership within an organization?

  • It helps leaders set goals and motivate their teams (correct)
  • It promotes a reactive rather than proactive approach
  • It eliminates the need for team coordination
  • It leads to ignoring changes in the business environment

    • Why is adaptability crucial for a business in a changing environment?

    <p>To achieve meaningful goals that allow for evolution</p> Signup and view all the answers

    What can result from a leader's failure to excel in strategic tasks?

    <p>Potential business failure</p> Signup and view all the answers

    What role does change management play in strategic thinking?

    <p>It is vital for adapting to a rapidly changing environment</p> Signup and view all the answers

    What is a primary goal of a business aimed at growth?

    <p>Recognizing and pursuing opportunities</p> Signup and view all the answers

    Which of these best describes 'strategic direction'?

    <p>A broad indicator of a business's goals</p> Signup and view all the answers

    What element does a mission statement provide about a business?

    <p>A snapshot of current operations</p> Signup and view all the answers

    What role do projects typically play in relation to an organization's strategy?

    <p>They act as drivers of strategic intent</p> Signup and view all the answers

    What is meant by 'corporate entrepreneurship'?

    <p>Recognizing and pursuing new opportunities within the organization</p> Signup and view all the answers

    What do core values identify within a business?

    <p>The character traits needed to fulfill the business's vision</p> Signup and view all the answers

    What is the main purpose of business goals?

    <p>To achieve long-term outcomes aligned with the business's mission</p> Signup and view all the answers

    What is a primary purpose of organizational projects during a turnaround?

    <p>To introduce new products or services</p> Signup and view all the answers

    What does a SWOT analysis help to identify within an organization?

    <p>Strategically important projects</p> Signup and view all the answers

    What characterizes 'internal drivers' of projects according to the SWOT analysis?

    <p>Organizational competencies</p> Signup and view all the answers

    Which of the following is an example of a mandatory project?

    <p>Installing solar panels due to new legislation</p> Signup and view all the answers

    What role does the economic climate play in project management?

    <p>It provides opportunities for expansion through projects.</p> Signup and view all the answers

    What is a strategic project primarily aimed at?

    <p>Accomplishing a strategic objective</p> Signup and view all the answers

    Which of the following is NOT identified as an external driver of projects?

    <p>Internal resource allocation</p> Signup and view all the answers

    How can the review of current business practices lead to project development?

    <p>It promotes project management principles organization-wide.</p> Signup and view all the answers

    What defines operational projects in an organization?

    <p>They help increase efficiency and effectiveness.</p> Signup and view all the answers

    What is the purpose of using a weighted factor scoring model in project selection?

    <p>To reflect the relative importance of each criterion.</p> Signup and view all the answers

    Which of the following best describes the 'sacred cow' approach to project selection?

    <p>Choosing projects based on the preferences of senior officials.</p> Signup and view all the answers

    What is a primary limitation of using weighted scoring models?

    <p>They may assign minuscule weight to too many criteria.</p> Signup and view all the answers

    What characterizes the hybrid approach to project selection?

    <p>Combining both qualitative and quantitative elements with weightings.</p> Signup and view all the answers

    Which project selection method is best utilized for maintaining competitive advantage?

    <p>Competitive necessity approach.</p> Signup and view all the answers

    What is a potential disadvantage of using a hybrid method in project selection?

    <p>It requires extensive time to develop.</p> Signup and view all the answers

    What does the scoring in a weighted factor scoring model reflect?

    <p>An objective assessment based on weighted criteria.</p> Signup and view all the answers

    What is a potential outcome of using a scorecard in project selection?

    <p>Clear communication on project rankings and decisions.</p> Signup and view all the answers

    What is the role of the business case in project selection?

    <p>It justifies the project's relevance and outlines the need it addresses.</p> Signup and view all the answers

    Which quantitative approach assesses how long a project will take to pay itself off?

    <p>Payback period</p> Signup and view all the answers

    Which model takes into account the present values of future cash flows?

    <p>Net present value</p> Signup and view all the answers

    What is one of the limitations of profitability models in project selection?

    <p>They assume cash inflows will be stable over time.</p> Signup and view all the answers

    What does the profitability index indicate regarding project selection?

    <p>A value greater than 1.0 suggests potential project viability.</p> Signup and view all the answers

    What is a key feature of the unweighted 0-1 factor model?

    <p>It prioritizes all criteria equally in its assessment.</p> Signup and view all the answers

    Which quantitative approach provides a discount rate that makes expected cash inflows equal to expected cash outflows?

    <p>Internal rate of return</p> Signup and view all the answers

    How does the average rate of return differ from the payback period?

    <p>It examines the average annual profit realized by the project.</p> Signup and view all the answers

    What is a general benefit of operational projects?

    <p>They often provide a direct connection to strategic objectives.</p> Signup and view all the answers

    What is a crucial aspect in the project selection process related to organizational strategy?

    <p>Selecting projects that fit the organization's overall objectives</p> Signup and view all the answers

    What main concept defines strategy within an organization?

    <p>A framework for making choices and decisions</p> Signup and view all the answers

    Why is maintaining a strategic mind-set essential for organizations during change?

    <p>To adapt and achieve meaningful goals</p> Signup and view all the answers

    How do business leaders play a role in the strategic process?

    <p>By envisioning the future and motivating staff to align with that vision</p> Signup and view all the answers

    What is a consequence of failing to excel at strategic tasks by business leaders?

    <p>Potential business failure</p> Signup and view all the answers

    What is the primary purpose of a mission statement in a business?

    <p>To define the current actions taken to achieve the vision</p> Signup and view all the answers

    Which of the following best describes core values within a business?

    <p>The character traits necessary to uphold the organization's vision</p> Signup and view all the answers

    How does creating a shared vision impact a business organization?

    <p>It helps ensure long-term success and cohesion among employees</p> Signup and view all the answers

    Which of these statements best represents strategic direction in an organization?

    <p>It outlines the broad objectives and path for the business's future</p> Signup and view all the answers

    What is a key role of projects within an organization’s strategy?

    <p>To act as the primary means of translating strategic goals into action</p> Signup and view all the answers

    Which aspect does NOT define the scope of a mission statement in a business?

    <p>Long-term financial projections</p> Signup and view all the answers

    In the context of strategic direction, what does the term 'vision' primarily represent?

    <p>The long-term aspirations and ultimate achievements of a business</p> Signup and view all the answers

    Which factor is critical for the successful formulation of a vision within an organization?

    <p>Creating a shared understanding among employees</p> Signup and view all the answers

    What does corporate entrepreneurship primarily focus on within an organization?

    <p>Identifying and leveraging new opportunities for growth</p> Signup and view all the answers

    What is identified as a significant challenge in creating a shared vision within a business organization?

    <p>Ensuring all management levels are aligned with the vision</p> Signup and view all the answers

    What is a significant outcome of selecting projects that fit an organization's strategy?

    <p>Optimized resource utilization</p> Signup and view all the answers

    Which of the following best describes the role of strategic thinking in leadership?

    <p>To enhance awareness of changing patterns</p> Signup and view all the answers

    Why has strategy gained prominence as a focal point for organizations?

    <p>It is crucial for informed decision-making</p> Signup and view all the answers

    What critical aspect must organizations embrace to adapt effectively to changes in their environment?

    <p>A pertinent strategic mind-set</p> Signup and view all the answers

    What can be a consequence of a leader's failure to excel in strategic thinking and leadership?

    <p>Potential business failure</p> Signup and view all the answers

    What is a significant risk when employing a weighted factor scoring model for project selection?

    <p>Overly detailed criteria can dilute the impact of their weightings.</p> Signup and view all the answers

    In the hybrid approach to project selection, how are qualitative and quantitative elements treated?

    <p>They are combined and weighted differently based on strategic priorities.</p> Signup and view all the answers

    Which qualitative project selection approach is driven primarily by the interests of powerful individuals within the organization?

    <p>Sacred cow</p> Signup and view all the answers

    What is a potential advantage of using qualitative project selection methods such as the 'sacred cow' method?

    <p>They can garner support from influential stakeholders.</p> Signup and view all the answers

    Which of the following best conveys the primary purpose of projects that emerge from competitive necessity?

    <p>To enhance the organization’s competitive position or capitalize on new opportunities.</p> Signup and view all the answers

    What is the role of internal drivers in project initiation within an organization?

    <p>They create a culture of organization-wide project management.</p> Signup and view all the answers

    Which of the following best represents mandatory projects in an organization?

    <p>Projects initiated for compliance with industry standards.</p> Signup and view all the answers

    How do external drivers differ from internal drivers in influencing project selection?

    <p>External drivers often arise from economic and legislative changes.</p> Signup and view all the answers

    What is a significant limitation of using a SWOT analysis for project identification?

    <p>It may simplify complex organizational challenges without actionable solutions.</p> Signup and view all the answers

    What aspect characterizes operational projects as opposed to strategic projects?

    <p>Operational projects focus on everyday efficiency and effectiveness.</p> Signup and view all the answers

    Which of the following best reflects the purpose of strategic projects?

    <p>To achieve long-term growth and organizational objectives.</p> Signup and view all the answers

    In what way does globalization act as an external driver for projects?

    <p>It enlarges market opportunities and fosters new project avenues.</p> Signup and view all the answers

    What is typically included in the business case for a project?

    <p>A description of the need addressed by the project and a project plan</p> Signup and view all the answers

    Which quantitative approach is used to measure the time it will take for a project to cover its initial investment?

    <p>Payback period</p> Signup and view all the answers

    Which approach assists in overcoming the limitations of traditional profitability models in project selection?

    <p>Weighted scoring model</p> Signup and view all the answers

    What does the internal rate of return represent in project evaluation?

    <p>The discount rate where cash inflows equal cash outflows</p> Signup and view all the answers

    Which limitation do profitability models share in the context of project selection?

    <p>They do not consider non-financial benefits</p> Signup and view all the answers

    What is a key characteristic of the unweighted factor scoring model?

    <p>It only requires yes or no evaluations for criteria</p> Signup and view all the answers

    How does the profitability index aid in project selection?

    <p>By providing a ratio that helps assess relative profitability</p> Signup and view all the answers

    Which of the following is a significant deficiency of the payback period model?

    <p>It does not consider the time value of money</p> Signup and view all the answers

    What is primarily assessed by the net present value (NPV) model in project selection?

    <p>The present value of future cash flows against required returns</p> Signup and view all the answers

    What is an aspect that the average rate of return model refines from the payback period?

    <p>It accounts for annual profit instead of just cash inflow timing</p> Signup and view all the answers

    What primary aspect distinguishes operational projects from strategic projects?

    <p>Operational projects aim to enhance efficiency and effectiveness.</p> Signup and view all the answers

    What is a significant drawback of using the profitability model for project selection?

    <p>It assumes stable cash inflows throughout the project lifecycle.</p> Signup and view all the answers

    Which component is NOT typically included in a business case for a project?

    <p>A detailed project financial budget.</p> Signup and view all the answers

    Which model is primarily concerned with qualitative assessments in project selection?

    <p>Unweighted factor scoring model.</p> Signup and view all the answers

    What limitation is common among scoring models used for project selection?

    <p>They may oversimplify complex decision-making processes.</p> Signup and view all the answers

    Which statement most accurately reflects the relationship between strategy and project selection?

    <p>Strategy should inform the selection of projects to optimize available resources.</p> Signup and view all the answers

    In the context of strategic management, what does operating with a strategic mind-set entail?

    <p>Being responsive to changing patterns and seizing opportunities.</p> Signup and view all the answers

    What is an essential responsibility of business leaders in the context of strategy?

    <p>To envision future goals and ensure alignment across the organization.</p> Signup and view all the answers

    How does an organization's ability to adapt relate to its strategic management?

    <p>An organization must have a dynamic strategy to respond effectively to environmental changes.</p> Signup and view all the answers

    Which misconception about strategy is commonly held in organizations?

    <p>Strategy is merely a buzzword without practical implications for business operations.</p> Signup and view all the answers

    Which aspect is considered essential for entrepreneurship within an organization?

    <p>Recognition and pursuit of new opportunities</p> Signup and view all the answers

    What is the primary difference between a mission statement and a vision for a business?

    <p>The mission statement describes current operations, while the vision outlines long-term aspirations.</p> Signup and view all the answers

    How do core values within a business influence its success?

    <p>They characterize the business culture and align employee efforts with the business mission.</p> Signup and view all the answers

    What aspect of strategic direction is crucial for businesses to determine?

    <p>Understanding what resources are needed to achieve goals</p> Signup and view all the answers

    Why is having a shared vision important for a business organization?

    <p>It aligns all employees towards common goals, fostering long-term success.</p> Signup and view all the answers

    What is a primary characteristic of internal drivers of projects?

    <p>They stem from organizational strengths and competencies.</p> Signup and view all the answers

    Which type of project is classified as mandatory?

    <p>A project that responds to urgent environmental legislation.</p> Signup and view all the answers

    What role does the SWOT analysis primarily play in project identification?

    <p>It helps in identifying strategically significant projects.</p> Signup and view all the answers

    Which of the following is a potential external driver of projects?

    <p>Shifts in global trade regulations.</p> Signup and view all the answers

    In the context of project selection, what is a strategic project primarily focused on?

    <p>Aligning with the organization's long-term strategic objectives.</p> Signup and view all the answers

    Study Notes

    Linking Projects to Strategy

    • Strategy is about choice and making important business decisions, encompassing mindset, leadership, change management, growth, and entrepreneurship.
    • Strategic direction defines where the organization wants to go, how it will get there, and what resources are needed.
    • Vision outlines the business's ultimate aspiration, what it wants to achieve in the future, and how to adapt to a changing environment.
    • Mission Statement provides a snapshot of the business's current activities and purpose, outlining its products/services, employees, customers, quality, management, community, and environmental values.
    • Core Values describe the "character traits" needed to live up to the vision, defining the business's culture and the inherent ethos of its employees.
    • Business Goals are long-term outcomes desired by the business, ensuring results across all functional areas and aligning with the mission and vision.

    Project's Role in Strategy

    • Projects are seen as "drivers" of strategy, the vehicles that bring the vision to life.
    • Projects are directly linked to the organization's strategic intent and contribute to organizational turnaround.
    • Turnaround often involves introducing new products or services, which are driven by projects.

    Strategic Drivers of Projects

    • The SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a commonly used tool for identifying strategically important projects.
    • Internal drivers stem from within the organization:
    • Organizational Competencies: Unique skills, financial resources, and physical resources enable the organization to excel in certain areas and tasks.
    • Strategic Intent: Initiatives that fit with the organization's vision, mission, and values.
    • Review of Current Practices: Examining internal processes, systems, and activities can lead to improvement projects.
    • External drivers arise from outside the organization:
    • Economic Climate: Favorable conditions can lead to opportunities for expansion, managing through project management principles.
    • Legislation and Governance: New regulations often necessitate the implementation of new practices and processes.
    • Globalization: Expanding business operations across borders, facilitated by project management methodologies.

    Project Selection

    • Project types:
    • Mandatory: Compliance or emergency projects driven by legislation or urgent circumstances.
    • Operational: Improve organization efficiency and effectiveness.
    • Strategic: Achieve strategic objectives, such as growth by developing new products or services
    • Project types are important for understanding the motive behind a project. Even mandatory and operational projects can have strategic implications.

    The Business Case

    • The business case justifies the selection of a project, presenting a need, a project-driven solution, the relationship to the overall strategy, and a project plan.
    • It acts as a "sales pitch" for the adoption of new projects.

    Quantitative Approaches for Project Selection

    • Profitability models: Use financial data to assess the economic value of different projects.
    • Payback Period: Time required for the project to pay off the initial investment.
    • Average Rate of Return: Calculates the annual profit generated by the project.
    • Internal Rate of Return (IRR): Discount rate that makes the present value of cash inflows equal to cash outflows.
    • Net Present Value (NPV): Calculates the present value of all cash flows, considering the required rate of return.
    • Profitability Index: NPV of future cash flows divided by the initial investment.
    • Scoring models: Incorporate various criteria to assess projects based on their multi-dimensional impact.
    • Unweighted 0-1 Factor Model: Assigns "Qualifies" or "Does not qualify" to projects based on various criteria, then adds the "qualifies" values to select projects above a threshold.

    Project Selection Models

    • Unweighted Factor Scoring Model: A basic qualitative model where criteria are assessed on a 'yes' or 'no' basis. This model is simple but lacks nuance.
    • Weighted Factor Scoring Model: A more sophisticated qualitative model where criteria are ranked on a scale (e.g., 1-10) and multiplied by a weight reflecting their importance to the organization. This allows for more precise evaluation of projects, but can be complex to implement.
    • Hybrid Approach: A combination of qualitative and quantitative approaches. This involves assigning weights to both qualitative and quantitative factors, followed by scoring and ranking projects. This approach aims for a more comprehensive assessment of projects and is considered the most balanced.

    Qualitative Approaches

    • Sacred Cow: Projects driven by powerful executives, often with little regard for economic value or strategic alignment.
    • Operating Necessity: Projects initiated to address critical system or process failures to keep operations running.
    • Competitive Necessity: Projects undertaken to maintain or gain a competitive advantage.
    • Product Line Extension: Projects to develop and launch new products, evaluated in terms of their fit within the existing product line and market opportunities.

    Internal vs. External Project Commissioning

    • External Project Commissioning: Projects initiated by external customers (private, public, or non-profit sectors).
      • RFPs (Request for Proposals): Documents outlining project requirements used to solicit bids from project management organizations.
      • Tenders: RFPs issued by government departments and agencies.
      • Preferential Procurement: Process of evaluating the BBBEE (Broad-Based Black Economic Employment) credentials of contractors when awarding public projects.
    • Internal Project Commissioning: Projects initiated within the same organization, often by a project sponsor who provides direction and funding.

    Outsourcing Considerations

    • Resource and Skill Availability: Determining whether the organization possesses the necessary skills and resources to complete a project internally.
    • Strategic Significance: Projects with high strategic significance are typically undertaken internally to protect intellectual property and ensure alignment with the organization's culture.
    • Cost Analysis: Weighing the costs of internal project execution versus outsourcing.
      • Internal Capacity: Assess if the organization has spare resources to take on a new project.
      • Contractor Capabilities: Evaluating the contractor's ability to execute the project independently and identifying any potential need for organizational support.

    What is Strategy?

    • Strategy is about choice and relates to many important business decision-making issues such as mindset, leadership, change and change management, growth, and entrepreneurship.
    • Strategic thinking is associated with awareness of changing patterns and responsiveness to opportunities.
    • Successful business leaders envision the future of their organizations, setting goals, inculcating the vision throughout the business, motivating staff to pursue this vision, and supporting and coordinating activities.
    • The faster the business environment changes, the more important it is to process a pertinent strategic mindset within the organization to set and achieve meaningful goals and allow the business to adapt.
    • Growth is a key goal for businesses, as investors and shareholders are looking for it.
    • Entrepreneurship is about recognizing and pursuing opportunities, while strategic management is also involved in scanning the environment for new opportunities and creating ways to profit from them.
    • Finding new ways to do things within the organizational context, “corporate entrepreneurship,” is the essence of improving performance.

    What does Strategy involve?

    • The starting point of an appropriate operational strategy is deciding upon a broad direction in which top management would like to move the business.
    • Strategic direction is a broad indicator of where the business wants to go, how it wants to get there, and what it needs to get there.
    • The organization needs to consider visible indicators of strategic intent such as vision, mission statement, core values, and business goals.

    Vision

    • Vision is a short description of what the business ultimately would like to achieve.
    • The business definition question should be stated not only as "What is our business?" but also as "What will it be?" and "What it should be?".
    • Vision is future-oriented but must allow for flexibility.
    • Management should be realistic and proactive to adapt the vision of the business to the environmental requirements and constraints.
    • A shared vision that every employee believes in is essential for longevity and long-term success.

    Mission statement

    • The mission statement of a business is a “snapshot” of what the business is currently doing to achieve its vision.
    • It tells the reason for the business’s existence and what it is all about.
    • The mission statement can be defined as the unique purpose that sets a company apart from others and identifies the scope of its operations in product, market, and technology terms.
    • The mission statement gives an external party clues about the business’s products and services, employees, customers, quality, management, and community and environment.

    Core values

    • These values describe the “character traits” needed to live up to the vision set by the business organization.
    • Values identify the character of the business in terms of culture and the inherent ethos of the employees.
    • If employees do not possess these core values, the business cannot possess them and will not fulfill its mission.

    Business goals

    • Business goals refer to certain long-term outcomes that the business wants to achieve.
    • Such goals imply results that involve all functional areas of the business.
    • These outcomes are carefully considered by top management to live up to the mission of the business and move closer to the vision.
    • Business goals give more specific detail on how the business fulfills its purpose.

    What role do projects play in strategy?

    • Projects are “drivers” of strategy.
    • To live up to its strategic intent, the business needs to put actions and activities in progress to achieve what it has envisioned.
    • Projects are directly tied to the strategic intent of the organization.
    • Projects should be assessed in terms of their capabilities to help live up to the overall strategic direction that the organization has fashioned for itself.
    • Projects play a crucial role in the turnaround of an organization through the introduction of new products or services.

    What are the strategic drivers of projects?

    • One tool in the formulation of strategy is the SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.
    • Organizational weaknesses and environmental threats are challenges that necessitate a different approach to internal strengths and external opportunities.
    • Potential areas of interest for future projects could be forthcoming from organizational strengths and external opportunities.

    Initial drivers of projects

    • “Internal drivers” refer to sources of projects that stem from within the organization.
    • Potential drivers of projects, derived from the SWOT analysis, include organizational competencies, the strategic intent of the organization, and the review of current business practices, processes, and systems.

    Organizational competencies

    • Every organization possesses a unique mix of skills, financial resources, and physical resources that enable it to excel in certain areas and tasks.
    • The mix could enable the organization to approach everything it does as distinguishable projects.
    • This can give rise to a culture of organization-wide project management, which can be seen as the application of project management principles and processes throughout the organization.

    The strategic intent of the organization

    • Certain initiatives are embarked upon because they fit in with the organization’s vision, mission, and values.
    • For example, socially and environmentally responsible initiatives can be driven as distinct projects within the business.

    Review of current business practices, processes and systems

    • An examination of internal processes, systems, and activities can give rise to the need for improvement.
    • Changing practices, implementing a new system, or refining a current process are areas that lend themselves to project management principles.

    External drivers of projects

    • Potential drivers of projects that arise from outside the business organization include the economic climate, legislation and governance, and globalization.

    Economic climate

    • When economic conditions are favorable, more disposable income is available for expenditure and investment.
    • This gives organizations the opportunity to expand their operations, which can be managed according to sound project management principles.

    Legislation and governance

    • New legislation and corporate governance conventions often necessitate the implementation of new practices and processes, which are areas well suited to project management principles.

    Globalization

    • The increased emphasis on becoming a role player on the international stage has opened up new avenues of business in many organizations.
    • Coupled with technology and infrastructure that facilitate the real-time flow of information, resources, and goods across the world, expanding business operations across borders has become commonplace.
    • This expansion is often best facilitated through means of project management methodologies.

    What are the different types of projects?

    • Projects can be categorized as mandatory, operational, and strategic.

    Mandatory projects

    • These projects are “must-do” projects that employees are required to complete.
    • Compliance or emergency projects.
    • Compliance projects include changes that are introduced in an organization because of legislation or an industry standard.
    • Emergency projects require the urgent intervention of the organization.

    Operational projects

    • These projects are included in the day-to-day running of the organization and are most concerned with making an organization more efficient and effective.

    Strategical projects

    • These projects are undertaken to achieve a strategic objective, such as growth.
    • They might include the development of a new product or service.
    • Well-chosen and directed projects, even mandatory projects, might have a strategic implication.
    • Operational projects, because they result in greater efficiency and effectiveness, often facilitate achievement of strategic objectives.

    What is the business case of a project?

    • It is important to make a case for the selection of a particular project.
    • This is called the business case, where a particular need in an organization is identified and a project-based solution is presented.
    • The business case is a “sales pitch” for the adoption of new projects.
    • An organization should not consider a particular project unless its relative worth has been successfully motivated for.
    • It should contain a description of the need that will be addressed by the project, the recommended project-driven solution, the relationship of the project to the overall strategy of the organization, and a project plan detailing when and how the project will be delivered.
    • The business case is an important step in the project selection process as it allows the organization to specify and justify the importance of different projects.

    What are the quantitative approaches used to select a project?

    • Quantitative approaches use numbers to measure the project’s worth.
    • Two approaches are used: the profitability model and scoring models.

    Profitability model

    • This model uses numbers as input, assessing possible projects in terms of the value they will add to the profitability and growth of the business organization.
    • Managers often use profitability models as their sole method of project selection.
    • Some popular profitability models include:
      • Payback period: This considers the fixed investment in the project divided by estimated net cash inflows per year resultant from the project.
      • Average rate of return: This refines the payback period and considers the fixed investment in the project divided by the average annual profit realized by the project.
      • Internal rate of return: This computation is employed if the project managers have calculated expected cash inflows and expected cash outflows over time.
      • **Net present value (NPV): ** This determines the NPV of all cash flows by discounting them against the required return on investment rate of the project.
      • Profitability index: This calculation considers the NPV of all future expected cash flows divided by the initial investment in the project.

    Scoring models

    • These models seek to numerically assess multiple facets of the business when selecting a project/group of projects.
    • They include:
      • Unweighted 0-1 factor model: This model selects a variety of criteria which are then rated by a panel of knowledgeable managers. The panel merely indicates whether a particular project ‘Qualifies’ or ‘Does not qualify’ in terms of the listed criteria. Projects that are selected are those that achieve a pre-determined threshold of “Qualifies.”

    Quantitative Project Selection Models

    • 0-1 Unweighted Factor Scoring Model: Each criterion is assessed as "qualifies" or "does not qualify." Limited in fine-grading and scoring project criteria.
    • Unweighted Factor Scoring Model: Criteria are rated on a scale (e.g., 3-point, 10-point) instead of binary assessments. Scores are summed, exceeding a pre-determined value indicates project viability.
    • Weighted Factor Scoring Model: Assigns a weighting factor to criteria, reflecting its relative importance to the organization. The rated score for each criterion is multiplied by its weight before summing for an overall score. Weightings often add up to 100%.

    Qualitative Project Selection Approaches

    • The Sacred Cow: Projects driven by powerful senior officials' desires. May not be aligned with organizational strategy or add economic value. Driven by personal agendas.
    • Operating Necessity: Projects required to maintain a system or process' integrity. Justified if the system/process is important enough to warrant the project's expense.
    • Competitive Necessity: Projects needed to maintain or exploit a competitive advantage in the market. Justified if potential gains outweigh project costs.
    • Product Line Extension: Projects to develop and distribute new products, evaluated based on alignment with the existing product line, market opportunities, and strengthening the competitive position.

    Hybrid Project Selection Approach

    • Weighted Scorecard Approach: Combines quantitative and qualitative elements. Weightings are assigned to each element, reflecting strategic priorities. Projects are scored, with higher scores indicating stronger likelihood of selection. A threshold might be set for project rejection.
    • Advantages: Inclusive, considers both quantitative and qualitative factors. All projects are rated and ranked, potentially eliminating "pet projects." Communicates project selection rationale to project managers.
    • Disadvantages: Time-consuming to develop. Potential for disagreement on scorecard components, leading to conflict.

    Internal vs. External Project Commissioning

    • External Project Commissioning: Customers are outside the project manager's organization (private, public, non-profit sectors). Organizations compete for projects through Requests for Proposals (RFPs) or Tenders.

    • Public Sector Projects: Subjected to strict monitoring to prevent corruption and ensure transparent bidding processes.

    • Short-listed Contractors: Preferred business partners who have a proven track record and good relationships with the customer. They may be invited directly to RFP information sessions.

    • Broad-Based Black Economic Employment (BBBEE): Evaluates contractor's BBBEE credentials in public project management, contributing to the organization's overall BBBEE status.

    • Legitimacy: Moral, cognitive, and conformance legitimacy are essential for building reputation and increasing chances of being shortlisted.

    • Unrealistic Customer Expectations: Customers may have unrealistic project objectives and timelines, requiring mutual agreement to avoid conflicts.

    • Internal Project Commissioning: The customer is within the same organization, often called the project sponsor. Sponsors provide direction and funding, but these funds are not from their personal resources.

    • Project Champions: Important for project initiation and success, as they overcome resistance and support project lifecycle.

    Outsourcing Considerations

    • Resource and Skill Availability: Whether the organization has the necessary skills and resources to complete the project internally, and if they can be reallocated. If not, external commissioning may be needed.
    • Strategic Significance: Projects with high strategic importance driving competitive advantage are usually done in-house to ensure seamless integration and protect intellectual property.
    • Cost Comparisons: Outsourcing can be seen as more cost-effective, but depends on internal capacity, additional resources required, and administrative burden.

    Choosing an Approach

    • Project selection is influenced by individual biases and preferences, often favoring quantitative approaches. This can lead to overlooking valuable qualitative considerations.
    • The balanced scorecard (hybrid) approach is recommended. It combines quantitative and qualitative elements, allowing for strategic weighting and inclusivity. The best approach is aligned with the organization's overall strategy.

    Linking Projects to Strategy

    • Strategy is about choosing business options to achieve objectives.
    • Strategic thinking requires awareness of changing business environments and opportunities.
    • Businesses need a strategic mindset to adapt to change and achieve growth.
    • Corporate entrepreneurship is about finding new ways to do things to improve performance.
    • A business strategy should define the desired future direction, how to get there, and the resources needed.
    • Vision is a short description of a business's ultimate aspiration.
    • Mission statement defines what the business currently does to achieve its vision.
    • Core values describe the character traits required by employees to achieve the vision.
    • Business goals are long-term outcomes that align with the mission and lead towards the vision.

    Project Selection

    • Projects can be categorized as mandatory, operational, and strategic.
    • Mandatory projects address required compliance or emergency situations.
    • Operational projects improve efficiency and effectiveness within the organization.
    • Strategic projects aim to achieve organizational goals like growth.
    • The business case is a proposal justifying the need for a project and its alignment with the organization's strategy.
    • It includes details of the project's purpose, solution, relationship to the overall strategy, and a plan for its delivery.

    Quantitative Project Selection Approaches

    • Profitability models utilize financial metrics to assess project value.
    • Payback period calculates the time required for a project to recoup its investment.
    • Average rate of return measures the average annual profit generated by a project relative to its investment.
    • Internal rate of return (IRR) determines the discount rate that equates the present value of cash inflows to the present value of cash outflows.
    • Net present value (NPV) calculates the present value of all future cash flows, discounted by the project's required return on investment rate.
    • Profitability index measures the NPV of expected cash flows divided by the initial investment, with values above 1.0 indicating acceptable selection.
    • Scoring models consider multiple criteria to evaluate and select projects.
    • Unweighted 0-1 factor model assigns "Qualifies" or "Does not qualify" ratings to criteria, with projects selected based on achieving a predetermined "Qualifies" threshold.

    Project Selection Models

    • Unweighted Factor Scoring Model: This model evaluates criteria on a "yes" or "no" basis, without considering the degree to which projects meet specific criteria.
    • Unweighted Factor Scoring Model: Criteria are assessed using a rating scale (e.g., 3-point or 10-point scale), scores are summed, and projects exceeding a predetermined threshold are selected.
    • Weighted Factor Scoring Model: This model assigns weighting factors to criteria based on their relative importance to the organization. Scores for each criterion are multiplied by their respective weights before being summed to obtain an overall score.
    • Qualitative Approaches: These approaches prioritize strategic and business goals, focusing on intangible factors rather than numerical data for project selection.
    • Sacred Cow: Projects driven by powerful individuals, often lacking proper consideration, economic value, or alignment with strategic intent.
    • Operating Necessity: Projects undertaken to maintain critical systems or processes, often prioritizing the preservation of existing functionality.
    • Competitive Necessity: Actions required to maintain or gain competitive advantage, typically involve balancing potential benefits against project costs.
    • Product Line Extension: Projects aim to develop and distribute new products that align with existing product lines, capitalize on market opportunities, and strengthen the company's competitive position.

    The Hybrid Approach

    • Combines quantitative and qualitative elements, assigning different weights based on organizational priorities.
    • Each element contributes to the project selection decision emphasizing both quantitative and qualitative considerations.
    • Projects are ranked and scored based on their overall weighted scores, allowing for objective comparisons.
    • Organizations often establish thresholds for project rejection based on the overall score.

    Internal vs. External Project Commissioning

    • External Project Commissioning: The customer is external to the project manager's organization, such as a private company, government agency, or non-profit organization.

    • RFP (Request for Proposal): A document outlining project requirements, used to solicit bids from project management organizations.

    • Tenders: RFPs specifically from government departments or agencies, subject to strict monitoring to prevent corruption and ensure transparency.

    • BBBEE (Broad-Based Black Economic Employment): A key consideration for awarding public sector projects, incentivizing organizations to collaborate with suppliers with good BBBEE credentials.

    • Legitimacy: Organizations striving for legitimacy, often adopt ethical codes of conduct to foster trust with stakeholders and ensure long-term market success.

      • Moral Legitimacy: Adhering to socially acceptable practices.
      • Cognitive Legitimacy: Making logical sense in the organization's actions.
      • Conformance Legitimacy: Complying with societal rules and regulations.

    • Internal Project Commissioning: The customer is within the same organization, typically referred to as the project sponsor.

    • Project Sponsor: Provides direction and funding for the project, often from the organization's budget.

    • Project Champion: Essential for project initiation and lifecycle support, as individuals who advocate for the project and encourage its success.

    Determining Project Commissioning:

    • Resource and Skill Availability: Consider if the necessary resources and skills are available internally. If not, external commissioning might be necessary.
    • Strategic Significance: Projects of high strategic importance, driving competitive advantage, are often best undertaken in-house due to the need for in-depth organizational knowledge and ensuring project control.
    • Cost: While external commissioning may seem cost-effective, it's important to consider internal capacity and resource allocation. Outsourcing adds administrative oversight and potentially necessitates additional resource contributions.

    Strategy

    • Strategy is about making choices that align with an organization's objectives and direction.
    • It involves considering factors like mindset, leadership, change management, growth, and entrepreneurship.
    • Strategic direction is a broad indicator of where an organization wants to go, how it wants to get there, and what it needs to get there.
    • Visible indicators of strategic intent include vision, mission statement, core values, and business goals.

    Vision

    • Vision is a short description of what the business ultimately wants to achieve.
    • It is future-oriented and should allow for flexibility.
    • Creating a shared vision that employees believe in is crucial for long-term success.

    Mission Statement

    • The mission statement is a snapshot of what the business is currently doing to achieve its vision.
    • It defines the unique purpose of the business and its scope of operations.

    Core Values

    • Core values describe the character traits needed to live up to the business organization’s vision.
    • They identify the culture and ethos of both the business and its employees.

    Business Goals

    • Business goals are long-term outcomes that the business wants to achieve.
    • They involve all functional areas of the business and are carefully considered to align with the mission and vision.

    Projects and Strategy

    • Projects are often drivers of strategy, putting actions and activities in progress to achieve the organization’s vision.
    • Projects should be assessed based on their ability to contribute to the overall strategic direction.
    • Projects play a crucial role in organizational turnaround, particularly through the introduction of new products or services.

    Strategic Drivers of Projects

    • The SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis can help identify strategically important projects.
    • Internal drivers of projects include organizational competencies, strategic intent, and review of current practices, processes, and systems.
    • External drivers of projects include the economic climate, legislation and governance, and globalization.

    Project Selection

    • Projects can be classified as mandatory, operational, or strategic.
    • Mandatory projects are required by legislation or an industry standard, while operational projects focus on improving efficiency and effectiveness.
    • Strategic projects are undertaken to achieve a strategic objective, such as growth.

    Business Case

    • The business case justifies the selection of a particular project.
    • It describes the need being addressed, the proposed solution, the project’s relationship to the organization’s strategy, and a project plan.

    Quantitative Approaches to Project Selection

    • Quantitative approaches use numerical measures to assess project worth.
    • Profitability models, such as payback period and average rate of return, focus on financial aspects.
    • Scoring models, such as the unweighted 0-1 factor model, consider multiple criteria and their relative importance.

    Project Selection Models

    • Unweighted Factor Scoring Model assesses criteria on a yes/no basis, neglecting fine-grained evaluation.
    • Weighted Factor Scoring Model assigns weights to criteria reflecting their importance, leading to more comprehensive evaluation.
    • Qualitative Approaches prioritize subjective factors:
      • Sacred Cow: projects driven by powerful individuals, often lacking strategic value.
      • Operating Necessity: projects essential to maintain existing systems or processes.
      • Competitive Necessity: projects aimed at maintaining or enhancing competitive advantage.
      • Product Line Extension: projects focused on expanding product lines, aligning with market opportunities.
    • Hybrid Approach: combines Quantitative and Qualitative methods for a balanced perspective.

    Project Commissioning

    • External Project Commissioning involves outsourcing projects to external organizations.
      • Request for Proposal (RFP): a document detailing project requirements, used for soliciting bids from potential contractors.
      • Tenders: RFPs specifically used by public sector agencies for government funded projects.
      • Preferential Procurement: emphasizes awarding public projects based on Broad-Based Black Economic Employment (BBBEE) credentials.
      • Ethical Considerations: organizations strive for legitimacy through moral, cognitive, and conformance adherence.
    • Internal Project Commissioning involves project sponsorship within the same organization.
      • Project Sponsor: provides project direction and funding, but not from personal resources.

    Internal vs. External Commissioning

    • Outsouring Factors:
      • Resource and Skill Availability: internal capacity and skillsets.
      • Project Significance: high-stake projects with strategic impact are often kept internal.
      • Cost Comparison: weighing in-house vs. outsourcing costs.
      • Administrative Burden and Capacity: assessing management oversight and resource demands.

    Conclusion

    • Choosing the right project selection approach depends on the organization's needs.
    • The most effective approach is often a hybrid method, taking into account both quantitative and qualitative factors.
    • Project selection is a crucial aspect of project management, directly impacting the organization's strategic direction.

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    Description

    This quiz focuses on the essential elements linking projects to business strategy, including vision, mission statements, core values, and business goals. Understand how these components influence decision-making and resource allocation in an organization. Test your knowledge on strategic direction and the role projects play in achieving business objectives.

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