Principles of Project Management Module 2 PDF

Module 2 Project Feasibility and Selection Principles of Project Management Module 2: Project Feasibility and Selection Table of Contents Module introduction...................................................................................................... 3 Outcomes and key topics............................................................................................ 4 Topic 1: Linking Projects to Strategy............................................................................... 5 What is a strategy?.................................................................................................... 6 What does strategy involve?....................................................................................... 9 The role of projects in strategy?.................................................................................13 What are the strategic drivers of projects?..................................................................14 Summary....................................................................................................................16 Topic 2: Project Selection.............................................................................................17 What are the different types of projects?....................................................................18 What is the business case for a project?.....................................................................19 What are the quantitative approaches used to select a project?....................................20 What are the qualitative approaches used to select a project?......................................23 What is the hybrid approach to selecting a project?.....................................................25 Which approach to project selection is best?...............................................................26 Summary....................................................................................................................27 Topic 3: Internal VS External Project Commissioning.......................................................28 What does external project commissioning involve?.....................................................29 What does internal project commissioning involve?......................................................33 Commissioning a project...........................................................................................35 Summary....................................................................................................................36 2 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Module introduction To do or not to do? That is the PM question Organisations are ‘bounded’ environments. They are limited in terms of resources, money and expertise and cannot take on every project they might wish to. It is therefore critical that they have the correct system in place to make the best decisions around whether or not to select a particular project, or indeed, which project to choose when faced with different alternatives. Mohammed has recently joined a ﬁnancial institution in his capacity as special projects director. He has several years of project management experience across several different sectors and has recently completed a postgraduate qualiﬁcation in project management. His ﬁrst task is to review the different portfolios of projects in terms of the overall strategy of the organisation. He notes, with alarm, that there is a sharp disconnect between several of the more high-proﬁle projects in terms of cost, which seem to have little bearing on the overall strategic direction of the organisation. He is also unable to ﬁnd any clear process around the selection of projects, with many projects falling into the category of what he thought to be “pet projects”, while others still have very limited selection criteria. He is adamant that this situation should be changed, but he is not sure how to approach the CEO. What would you do in this situation? Ultimately there should always be a strong strategic rationale for the selection of any project in the organisation. In other words, all projects should relate to the overall strategy of the organisation. Beyond this, projects should either have a positive ﬁnancial impact for the organisation or other non-ﬁnancial beneﬁts, or both. Mohammed might propose a robust selection process for projects which incorporates both ﬁnancial and non-ﬁnancial criteria.. To assess your understanding of each topic, you will have the opportunity to complete progress checks in the online module. 3 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Outcomes and key topics In this module, you will learn about strategy as the basis for selecting projects before exploring different approaches, such as quantitative (ﬁnancial), qualitative (non- ﬁnancial) and hybrid (mixed/balanced techniques). You’ll also consider the differences between internally and externally commissioning projects. The following topics will be covered: Topic 1: Linking Projects to Strategy Topic 2: Project Selection Topic 3: Internal VS External Project Commissioning This module, including all activities and assessments, should take between 5 to 7 hours to complete. If you require any assistance, please contact us. Sections of the content in this module are copyright of Oxford University Press Southern Africa (Pty) Ltd, from the work Project Management in Perspective ISBN 978 109 599314 1 (2011) and are reproduced under licence by LRMG PTY LTD on behalf of Wits Plus. Users of the material may print copies of the Wits Plus material for their own, personal, non-commercial use. The material may not be passed on to others, or used for commercial purposes 4 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Topic 1: Linking Projects to Strategy Project management is becoming a common method through which business is conducted within an organisation. A large percentage of an organisation’s initiatives are delivered through projects – this means that the strategy of an organisation is being implemented through the implementation of projects. The implication of this is that all implemented projects are linked to the strategic intent of the aforementioned organisation. Learning Outcomes In this topic you will be expected to: Describe the role of organisational strategy in project selection The following key questions will be answered as you explore this topic: 1. What is strategy? 2. What does strategy involve? 3. What role do projects play in strategy? 4. What are the strategic drivers of projects? To assess your understanding of this topic you will have the opportunity to complete a Progress Check activity in the online learning before moving onto the next topic. 5 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What is a strategy? Project selection is an important part of project management. Given limited resources as well as money, organisations often have to choose only the most relevant project. This largely has to do with ‘ﬁt’ – that is, organisations should choose only those projects which ‘ﬁt’ with their overall objectives and direction. In so doing, they’ll be able to make the best of (i.e. optimise) resources available to them. This ‘ﬁt’ largely has to do with how well projects relate to an organisation’s strategy. The point of departure is quite simply that every project should play a role in the organisation’s strategy. But what is strategy? There is a lot of literature on strategic management, organisational strategy and strategic thinking, but very often it seems as though ‘strategy’ has become a buzzword for whatever the organisation is planning, managing or ﬁnancing. Analogies of strategy have been applied to the behaviour of – amongst others – the lion, the wolf pack, the baboon troop and the dolphin, to explain application. Games have been developed to teach strategy and its application by forcing people to make decisions about the performance of their business, but why all the ‘hype’ about strategy? Why has it become such a focal point for organisations? Since people ﬁrst waged war on each other, strategy has been of importance. Indeed, the book The Art of War by Sun Tzu was ﬁrst written in (circa) 450 AD, and is seen by many as the foundation of the discipline of strategic management. The chief, warlord or general with the better strategy – both defensive and offensive – was more successful. Strategy, as we know it in the organisational context today, has always been associated with warfare. This is evident from terminology such as guerrilla tactics, hostile takeover, and offensive and defensive strategy, as well as frontal attack. For example, when Microsoft was involved in the so-called ‘Internet War’ with Netscape in 1997/98, this was seen as a frontal attack by Microsoft on Netscape’s market position. 6 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Essentially, strategy is about choice, and it is therefore important to a business as it relates to many important business decision-making issues. These decision-making issues include: Mind-set Typically, strategic thinking is associated with awareness of changing patterns and responsiveness to opportunities that arise. Leadership When business leaders envision the future of their organisations, they are involved in the process of strategy. As such, they should envision goals, inculcate the vision throughout the business, motivate staff to pursue this vision, and support and coordinate activities if they want to succeed as business leaders. However, failure to excel at these tasks could lead to business failure. Change and change management The faster the environment within which a business organisation changes, the more important it becomes to possess a pertinent strategic mind-set within the organisation in order to set and achieve meaningful goals to allow the business to adapt. The same methods of operation will not keep the business going forever if the environment is changing. Growth Growth is probably the most important goal for a business, because that is what investors and shareholders are looking for. A business cannot achieve growth by applying the same strategy over and over again and should consider different options accordingly. Entrepreneurship Entrepreneurship is concerned with recognising and pursuing opportunities, but strategic management is also involved in scanning the environment for new opportunities and creating ways to proﬁt from them. 7 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Finding new ways to do things within the organisational context (referred to as ‘corporate entrepreneurship’) is the essence of improving performance. This also implies innovation, as focusing on new and different ways to do new things shows that the organisation has a culture of wanting to do things differently from its competitors. Why is strategy important in project selection? Project selection is an important part of project management. Given limited resources as well as money, organisations often have to choose only the most relevant project. This largely has to do with ‘ﬁt’ – that is, organisations should choose only those projects which ‘ﬁt’ with their overall objectives and direction, i.e. their strategy. 8 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What does strategy involve? The starting point of an appropriate organisational strategy is deciding upon a broad direction in which top management would like to move the business. Think of a ship sailing from Kobe in Japan to South Africa with a shipment of motorcar subassemblies – someone needs to decide on the port of ﬁnal destination, the route to be followed to get there and the physical requirements needed for the journey (labour and supplies). This person – the captain of the ship (with inputs from his/her senior ofﬁcers and bearing the wishes of their customer in mind) – is deciding upon the strategy of the journey. Strategic direction is a broad indicator of the following issues: Where do we want to go? How do we want to get there? What do we need to get there? In order to answer the questions posed above, the organisation needs to consider the following visible indicators of strategic intent: Vision: Vision can best be described as a short description of what the business ultimately would like to achieve. Just as each person has some life’s ambition, so too a business should have some ‘dream’ that it aspires toward. For example, the vision of Nedbank is: ‘To become Southern Africa’s most highly rated and respected bank by staff, clients, shareholders, regulators and communities’. As prominent management scholars have pointed out, the business deﬁnition question should be stated not only as ‘What is our business?’ but also as ‘What will it be?’ and ‘What should it be?’ The latter two questions are concerned with vision. It can be seen that vision is very much future-orientated, yet it must allow for ﬂexibility. But, what the business should be and what it will be, might be two different things in the end. Management should always be realistic and proactive to adapt the vision of the business to the requirements and constraints of the environment within which it operates. Creating a shared vision that every employee in the organisation buys into and believes in is a cardinal step to longevity and the long-term success of any business organisation. 9 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection This is an exceptional challenge and can take many years to achieve, but one that is often downplayed and underrated by many management scholars and practitioners, as the effect of not having a shared vision is not immediate to the organisation. Mission statement: Whereas vision is a description of what the business ultimately would like to achieve, the mission statement of a business could be equated to a ‘snapshot’ of what the business is currently doing in order to achieve its vision. This ‘snapshot’ tells of what the reason for the existence of the business is and what the business is all about. Similar to the vision, the formulation and roll-out of a mission statement is also the domain of top management. Formally, the mission statement can be deﬁned as: ‘The unique purpose that sets a company apart from others of its type and identiﬁes the scope of its operations, in product, market and technology terms.’ The mission statement gives an external party clue to six key elements in the business: – Products/Services – What type(s) of products and services are offered by the business? – Employees – How does the business view and value its employees and the intellectual capital they possess? – Customers – What type of customers does the business have and what do they expect of the business? – Quality – What emphasis is placed on quality and what steps are taken to ensure it? 10 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Core values: These values describe the ‘character traits’ needed to live up to the vision set by the business organisation. These types of values therefore identify not only the character of the business in terms of culture, but also the inherent ethos of the employees of the business. This is very important, as a business is in essence nothing more than the collective efforts of its employees. If the employees do not possess these core values, the business cannot possess them and the business will therefore not fulﬁl its mission. Business goals: This refers to certain long-term outcomes that the business wants to achieve. Such goals imply that there should be results that involve all of the functional areas of the business. These results or outcomes are not decided upon randomly, rather they are carefully considered by top management to live up to the mission of the business and ultimately move closer to the vision of the business. Stated differently, business goals give more speciﬁc detail on how the business goes about fulﬁlling its purpose. How do projects relate to strategy? Projects allow for the implementation of organisational strategy. Every project should play a role in the organisation’s strategy. 11 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection The ﬁgure below ties all the elements of strategic direction together, as discussed previously. Note the directionality of the arrows. It is interesting to note how the vision and the mission are the starting points of the overall strategy of the organisation. You may have realised that there is a link between the elements of strategic direction. This link is referred to as the ‘golden thread’. Stated in very simple terms, if the business goals of the business are all attained, the mission of the business is lived out, and if the mission is being lived out, then the business is moving closer to its vision. The core values of the business are the traits necessary to make all this possible. Yet, even if a business has developed a succinct direction that has the support of all stakeholders, it has to be viewed in the context of the competitive nature of business. Without competitors, there is no need for strategy, as the purpose of strategy is to enable the organisation to gain, as efﬁciently as possible, a sustainable edge over its competitors. 12 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection The role of projects in strategy? Thus far, you have learned about how strategy might play a role in project selection. In other words, selected projects should have a ‘ﬁt’ with the strategy of the organisation and should play a role in the overall strategy of the organisation accordingly. At the same time, projects play an incredibly important role in the strategic management process. For the most part, projects are ‘drivers’ of strategy. In order to live up to its strategic intent, the business needs to put actions and activities in progress as vehicles to achieve what it has envisioned. Projects constitute one of these vehicles and as such, they are directly tied to the strategic intent of the organisation. Therefore, envisioned projects should always be, ﬁrst and foremost, assessed in terms of their capabilities to help live up to the overall strategic direction that the organisation has fashioned for itself. Closely related to this point is the role that projects play in the turnaround of an organisation. Organisations all progress through a life cycle which includes phases such as inception, growth, maturity and eventual decline. However, before an organisation reaches decline, it might decide to turn itself around. This is often done through the introduction of new products or services, the development of which is project-driven. Projects therefore have a critical role to play in strategy, particularly as drivers of strategic intent and organisational turnaround. 13 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What are the strategic drivers of projects? One of the most commonly used tools in the formulation of strategy is the SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Although it is criticised by some as being an extremely simple tool which does not provide concrete solutions, it is nevertheless valuable in certain applications. As a tool to aid the identiﬁcation of projects that are strategically important to the business organisation, the SWOT analysis deﬁnitely has potential. It would stand to reason those organisational weaknesses and environmental threats are challenges that necessitate a different approach to internal strengths and external opportunities. In this regard, potential areas of interest for future projects could be forthcoming from those things the organisation excels at (internal organisational strengths) as well as those opportunities that arise from time to time within the competitive and macro environments (external environmental opportunities). Internal drivers of projects ‘Internal drivers’ refers to sources of projects that stem from within the organisation. Internal factors which could be potential drivers of projects – derived from the SWOT analysis – include: Organisational competencies Every organisation possesses a unique mix of skills, ﬁnancial resources and physical resources which enables it to excel in certain areas and at certain tasks. In other words, this speciﬁc mix of resources puts the organisation in a position of having speciﬁc competencies. This mix could, for example, enable the organisation to approach everything it does as distinguishable projects. This can give rise to a culture of organisation-wide project management, which can be seen as the application of project management principles and processes throughout the organisation. The strategic intent of the organisation Certain initiatives are embarked upon because they ﬁt in with the vision, mission and values of the organisation. Think, for example, of socially and environmentally responsible initiatives, which can be driven as distinct projects within the business. ESKOM, for example, strives to provide low-cost electricity to underprivileged communities in the form of solar panels that are ﬁxed to the roofs of low-cost houses. 14 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection This initiative obviously is something it does to uplift communities. There is no proﬁt incentive and it is run as a continuous project Review of current business practices, processes and systems An examination of internal processes, systems and activities can give rise to the need for improvement in this regard. Changing practices, implementing a new system or reﬁning a current process are areas that lend themselves to project management principles. External drivers of projects ‘Also forthcoming from the SWOT analysis, potential drivers of projects that arise from outside the business organisation include: Economic climate When economic conditions are favourable, more disposable income is available for expenditure and investment. This gives organisations the opportunity of expanding their operations, and this expansion could 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. These include mandatory projects. Globalisation The increased emphasis on becoming a role player on the international stage has opened up new avenues of business for many organisations. Especially coupled with technology and infrastructure that facilitate real-time ﬂow of information, resources (ﬁnancial and physical) and goods all over the world, expanding business operations across borders has become commonplace over the past two decades. For many organisations, this expansion is best facilitated through means of project management methodologies. Generally speaking, therefore, internal drivers of projects give rise to operational and strategic projects, while external drivers give rise to mandatory and strategic projects. 15 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Summary Projects are the vehicle through which organisational strategy is implemented. Projects which are driven through strategic goals could be forthcoming from those things the organisation excels at (internal organisational strengths) as well as those opportunities that arise from time to time within the competitive and macro environments (external environmental opportunities). 16 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Topic 2: Project Selection It is important to distinguish between the different project types within an organisation – three types of projects exist; these are emergency, operational and strategic. Projects are selected and implemented as a result of a need identiﬁed within an organisation; the most suitable project to fulﬁll that need must be selected through the approach that aligns most closely to that situation. These approaches will be outlined in this topic. Learning Outcomes In this topic, you will be expected to: Explain how projects are selected The following key questions will be answered as you explore this topic: 1. What are the different types of projects? 2. What is the business case for a project? 3. What are the quantitative approaches used to select a project? 4. What are the qualitative approaches used to select a project? 5. What is the hybrid approach to selecting a project? 6. Which approach to project selection is best? To assess your understanding of this topic you will have the opportunity to complete a Progress Check activity in the online learning before moving onto the next topic. 17 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What are the different types of projects? When selecting different projects, it is important to understand project types within an organisation and their potential relationships. Larson and Gray, two prominent authors in project management, suggest that projects can be seen as mandatory, operational and strategic. This can be explained using this diagram: Mandatory projects are ‘must do’ projects – you are compelled to complete them. These are also known as compliance or emergency projects. Compliance projects include changes that are introduced in an organisation because of legislation or an industry standard. For instance, legislation might be introduced requiring ofﬁce blocks to install solar panels. Emergency projects, however, require the urgent intervention of the organisation. For instance, the rebuilding of a dam wall on a mine if it collapses. Operational projects are those projects regarding the day-to-day running of the organisation, and are most concerned with making an organisation more efﬁcient and effective. For instance, an organisation might design and implement a new software package designed to make the procurement process quicker. Strategic projects are those which are undertaken to achieve a strategic objective, such as growth. These might include the development of a new product or service. In essence, well-chosen and directed projects, even mandatory projects, might have a strategic implication. For instance, a mandatory project will ensure a better relationship with government, which might result in contracts down the line, or in the case of an emergency project, getting the organisation back on track. Operational projects, because they result in greater efﬁciency and effectiveness, often facilitate achievement of strategic objectives. The distinction between project types is important when understanding the motive for a project. This said, operational and mandatory projects often have strategic implications even though they are not speciﬁcally strategic in nature. 18 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What is the business case for a project? Understanding how projects relate to the overall strategy of an organisation is an important part of project management. However, it is equally important that a case is made for the selection of a particular project. This is called the business case, and it provides the justiﬁcation and rationale for a project. It is through the business case that a particular need in an organisation is identiﬁed and a project-based solution is presented. This might well be the development of a new product or service (a strategic project), or even the implementation of a new operating system (an operations project). As such, the business case is something of a ‘sales pitch’ for the adoption of new projects (and possibly even the retention of existing projects). In other words, an organisation should not consider a particular project unless its relative worth has been successfully motivated for. The business case contains a description of the particular need that will be addressed by the project, the recommended project-driven solution, the relationship of the project to the overall strategy of the organisation, as well as 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 organisation to specify and justify the relative importance of different projects. 19 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What are the quantitative approaches used to select a project? When adopting a quantitative approach, you are essentially using numbers to measure the project’s worth. There are two quantitative approaches potentially used to select projects: the proﬁtability model and the scoring model. Proﬁtability models – as the name implies – use numbers as input. However, these numbers have bearing on the ﬁnancial position of the organisation and assess possible projects in terms of the value they will add (in economic terms) to the proﬁtability and growth of the business organisation. Very often, managers will use proﬁtability models as their sole method of project selection. Some of the more popular proﬁtability models are: Payback period This model considers the ﬁxed investment in the project divided by estimated net cash inﬂows per year resultant from the project. Thus, the computation tells management how long the project will take to pay itself off. Average rate of return This is reﬁnement on the payback period and considers the ﬁxed investment in the project divided by the average annual proﬁt (either before or after taxation) realised by the project. Both these models have the advantage that they are very simple to use, but they do not take into account the time value of money, which is their greatest deﬁciency. Furthermore, they also assume that cash inﬂows or proﬁt will be stable over time, during project inception and growth. The following models all make use of present values of future cash ﬂows. Internal rate of return This is a relatively complex computation that can only be employed if the project managers have calculated expected cash inﬂows and expected cash outﬂows over time. The internal rate of return is the discount rate that equates to the present value of the expected cash inﬂows as well as the expected cash outﬂows. 20 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Net present value (NPV) Also referred to as the discounted cash ﬂow model, it determines the NPV of all the cash ﬂows by discounting them (i.e. assessing whether they are less or greater than – in terms of value) 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. An answer of greater than 1.0 is deemed acceptable as basis for project selection. Although useful and relatively easy to use, proﬁtability models take a very one-sided view when it comes to project selection, and simply do not (and cannot) take into account the complexities of modern organisations. To try to overcome the bias of proﬁtability models on the ﬁnancial side of the business, various models have been developed that seek to numerically assess multiple facets of the business when it comes to selecting a project/group of projects. These so-called scoring models include: Unweighted 0-1 factor model In applying this model, management selects a variety of criteria which are then rated by a panel of knowledgeable managers, usually selected by top management. The panel merely indicates whether a particular project ‘Qualiﬁes’ or ‘Does not qualify’ in terms of the listed criteria. The number of ‘Qualiﬁes’ and the number of ‘Does not qualify’ are then added up. Projects that are selected are those that achieve a pre-determined threshold of ‘Qualiﬁes’. This model is quite simple to use and incorporates various criteria for assessment but assumes all the criteria are of equal importance. Furthermore, it does not allow for ﬁne grading or scoring of criteria. Instead, criteria are assessed on a ‘yes’ or ‘no’ principle. 21 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Unweighted factor scoring model This model overcomes some of the major criticism directed toward the 0–1 factor model – the fact that it does not allow for ﬁne scoring of the degree to which projects meet speciﬁc criteria. Therefore, instead of scoring criteria on the basis of ‘Qualiﬁes’ or ‘Does not qualify’, criteria are assessed on a rating scale (which can be anything from a three-point scale to a ten-point scale). The scores are then summed up and those projects with a total score exceeding a predetermined value will then be selected as viable options. Weighted factor scoring model Both the preceding models assume that all criteria are of equal importance, but this model ascribes a weighting factor to the criteria to represent the relative importance to the business organisation of each criterion on the assessment score sheet. Thus, the rated score for each criterion must be multiplied by the weighting of that criterion before all answers are added up to get an overall score per individual pane list. When deciding on the weightings ascribed to the individual criteria, weightings most often add up to 100%. The weighted scoring model will be revisted later on, in the form of the hybrid model. Scoring models are also easy to use and have the added advantage of considering multiple criteria. Furthermore, they also reﬂect managerial policy and strategic direction of the organisation and can easily accommodate changing circumstances. However, they are at best relative measures which do not directly indicate the utility of the project. As such, they do not offer conclusive grounds to support projects. Another danger associated with weighted scoring models is that if too many criteria are used, the weightings thereof become minuscule, with little impact on the overall score. 22 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What are the qualitative approaches used to select a project? Qualitative approaches do not use numbers as input for selection of projects. Some of these approaches include: The sacred cow Often, projects are embarked upon as a result of the desire of powerful senior ofﬁcials within the organisation (such as the CEO or the Chairman). Normally these ‘sacred cows’ (or ‘pet projects’) are pursued until they are either concluded, the senior manager recognises the need to terminate them, or the senior manager leaves the employment of the organisation and other managers terminate them. These sacred cows are often not properly considered, do not add economic value to the organisation or do not ﬁt with the overall strategic intent of the business. Rather, they satisfy personal and ideological agendas of those in powerful positions. However, this does not necessarily mean that all sacred cow projects are a liability to the organisation. For example, The Bugatti Veyron – manufactured by Volkswagen – is a supercar sold to the very high-end vehicle market at a price tag of €1 million. However, it is rumoured that VW is selling them at a loss. But the Veyron project was an effort to see what is possible in automotive engineering and was a ‘pet project’ of the chairman of VW. Feeling is therefore mixed in terms of the success of the Veyron project. It was not a proﬁtable exercise but, has redeﬁned what is possible in terms of automotive engineering, which of course is of immense value to VW and all the brands associated with it, such as Skoda, Audi and Porsche. The operating necessity Often, action in some area is needed to keep a system or process intact. These actions can very easily take the form of a project. If the system or process is worth saving at the expense of the project, such projects are worth pursuing. The competitive necessity Often, action in some area of the business is needed in order to maintain the business organisation’s competitive position or to take advantage of new competitive possibilities that arise. These actions required can also be undertaken in the form of projects. If the potential advantage gained from pursuing the project is larger than the cost of the project, then it is worth pursuing these projects. For example, take Formula One motor racing. Companies like Ferrari, Mercedes-Benz, BMW, Jaguar, Lotus, Renault, Honda, Ford and others have spent billions of dollars over the years in this extremely expensive sport. But 23 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection to what end? It is questionable if these companies make money out of these endeavours, but it is absolutely crucial for the development of future motorcars for these companies. Many advancements that we take for granted in modern cars were developed in F1, such as ABS braking, disc brakes, multivalve technology, and variable valve timing. The product line extension Projects to develop and distribute new products should be judged on the degree to which they ﬁt in with the existing product line of the organisation, take advantage of a new opportunity in the market or how they can strengthen the current competitive position of the business. TOP TIP The hybrid approach combines elements of both the quantitative and qualitative approaches to generate a more balanced perspective of the relative worth of a project. 24 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What is the hybrid approach to selecting a project? We have considered quantitative and qualitative methods to selecting projects. There is, however, a third approach, namely, the hybrid approach, which involves combining and weighting both quantitative and qualitative elements. The hybrid approach is also called the weighted score card approach. The following diagram illustrates this approach. BOTH quantitative and qualitative elements have been included, and weighted differently, according to strategic priorities of the organisation. What is important is that each element has a bearing on the decision to select a particular project, and neither the quantitative nor the qualitative approach can be discounted. Weightings are multiplied in each instance by individual scores for each element, to generate an overall score; the higher the score, the greater the likelihood of the project being selected. Both weightings and scores are organisation-speciﬁc and are determined according to the organisation’s particular requirement. The scorecard allows all projects to be rated and ranked, leading to an objective determination of more valuable projects. The organisation might well determine a threshold below which all projects are automatically rejected.This system is advantageous because it is inclusive – it ensures that both quantitative and qualitative elements are taken into account. All projects are rated using the system, so it potentially removes negative ‘pet projects’. Finally, it serves to communicate to project managers how their projects shape up relative to others, and why theirs might not have been selected. On the downside, it might well take a long time to put the scorecard together; you might not have full agreement from everyone on its components, which might lead to conﬂict, particularly from project managers whose projects are rejected. Overall, the weighted approach is considered a useful approach to project selection, largely because of its inclusivity. 25 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Which approach to project selection is best? You have explored three approaches to selecting a project, namely quantitative, qualitative and hybrid approaches. Determining which of these to use is usually a matter of preference, based on the needs and circumstances of an organisation. However, there are some important considerations: 1. At the outset, project selection is not really a function of the particular approach, but rather of the individuals who make the decision. In other words, project selection is very much inﬂuenced by the knowledge and preferences as well as the biases of people in the organisation. Biases might include choosing an approach which favours a particular project manager or even stereotyping (that is, favouring a particular approach based on a preconceived notion of its advantage). 2. Many organisations are biased towards quantitative approaches – relying on ﬁnancial determinants of project selection. This often means that qualitative reasons for project selection are overlooked, which suggests that beneﬁcial projects are ignored. A good example of this is Corporate Social Responsibility projects. 3. Probably the most useful approach is the balanced scorecard or hybrid approach. Here, organisations are able to select projects based on both quantitative and qualitative elements, whilst still being able to indicate a preference by using weightings. Choosing projects is probably one of the most important parts of the project management process. It is important to choose the approach which best ties in with the overall strategy of the organisation. Arguably, the most useful approach is that of the balanced scorecard which allows for more inclusivity 26 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Summary There are three different approaches to project selection. These are: quantitative, qualitative and hybrid. It is therefore important to choose the approach which best ties in with the overall strategy of the organisation. 27 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Topic 3: Internal VS External Project Commissioning Customers for relevant projects can originate from outside or inside a project manager’s organisation. The manner in which a project is commissioned is either external or internal – particular considerations must be made in each case. Learning Outcomes In this topic, you will be expected to: Determine the most appropriate project implementation solution The following key questions will be answered as you explore this topic: 1. What does external project commissioning involve? 2. What does internal project commissioning involve? 3. Commissioning a project To assess your understanding of this topic you will have the opportunity to complete a Progress Check activity in the online learning before moving onto the next topic. 28 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What does external project commissioning involve? External customers originate from outside the project manager’s own organisation and can be a part of the private, public or non-proﬁt sectors of the global economy. Customers may ask for proposal bids from project management organisations by explaining what they need in a request for proposal (RFP) document. When an RFP is advertised publicly in the media or on the internet, the organisation will respond by competing against other organisations for the customer’s projects (and funds) to be awarded to them. For example, the table below illustrates an RFP from the Fast Connect Telecommunications Company (FCTC). FCTC will be the external customer to the project management company called Sports Stars Management Company (SSMC). This example involves a telecommunications company’s desire to sponsor a world-class athlete to gain brand exposure. They have issued an RFP to appoint a project manager to make sure that their marketing and branding money is well spent, assuming that the athlete already has a coach to manage his or her athletic performance. The terminology used in the table requires some elaboration: The project objective is derived from the mission or problem statement. It states what the desired end result of the project is supposed to be. It has to be clear and unambiguous in order to be carried out successfully. Very often then it contains a timeframe and a budget. For instance, the project objective for the construction of a house might be to build a 100 square metre house within 16 weeks with double garage and swimming pool at a cost not exceeding R800 000. To this end, the SMART acronym should be used. Objectives should be speciﬁc, measurable, attainable, realistic and time-bound. The Statement of Work (SOW): outlines the work or tasks that the project management contractor is supposed to perform for the customer. In the proposal document to be presented to the customer, the project contractor puts forward proposed solutions or approaches for each task listed in the SOW. 29 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection In response to the RFP in the table, SSMC will submit its proposal to FCTC with reasons and evidence of why it can successfully initiate and complete the FCTC project. When FCTC has been convinced that SSMC will be the most suitable project management option, they will award the project to SSMC and the two organisations will have meetings to negotiate and draw up a legal contract for the project to start. 30 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection When government departments or agencies from the public sector request project management organisations to bid, they also publish RFP documents called tenders. Since publicly funded projects and tenders have large budgets that may involve millions, if not billions of Rands, the risks of corruption and unfair awarding of projects is high. In the past, many tenders have appeared to unfairly enrich those to whom they were awarded beyond the normal practices of project management. The South African media have, for instance, reported on unfairly awarded tenders; therefore, the ofﬁcial government tender process is strictly monitored. This monitoring process aims to prevent irregularities, favouritism and nepotism in the awarding of the public sector projects, by making the bid submission process more transparent. Sometimes projects do not follow all the steps involved in the long bid submission process. RFP documents may sometimes not be published for all project management contractors to submit proposal bids. Instead, some project contractors who are known to the customers will be short-listed and will receive the RFP documents directly to them. The bidding process can therefore be shortened when a project management organisation is already short-listed as a preferred business partner for a particular project to be awarded. When the project management organisation has a good reputation within their industry, or a history of prior successes, this may make them a preferred project contractor. If they have a good business relationship with the potential customer, they may also be invited privately to project proposal information sessions. However, even if project management organisations exist in government departments and public sector agencies’ databases as preferred business partners, it does not automatically guarantee being awarded the projects. The Broad-Based Black Economic Empowerment (BBBEE) credentials of the contractors will also be evaluated critically before they can be awarded public project management contracts, through what is known as ‘preferential procurement’. Here, the BBBEE status of all an organisation’s suppliers (including contractors who carry out the project) will count towards the overall status of the organisation, therefore it makes sense for organisations to only work with those suppliers who have good BBBEE credentials. BBBEE and government policy aside, a business’ code of conduct and ethics are meant to guide all transactions and even project management business practices. Organisations which adopt ethical codes of behaviour are striving to be legitimate in the eyes of all stakeholders, thereby ensuring their continued existence in the marketplace. 31 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Three types of legitimacy: Moral legitimacy – where the organisation does what is socially acceptable Cognitive legitimacy – where the organisation does what makes logical sense Conformance legitimacy – where the organisation conforms to established rules and regulations of society. Legitimacy and having an ethical code of behaviour will help a project management contractor to protect their reputation and be short-listed in the bidding process more often. However, the code of ethics for contractors does not always prevent customers from misconduct in the project management process. The customer may become unreasonable and use his or her project funding to create an unrealistic wish list of expectations for project contractors to fulﬁl. In the above table, the RFP example listed the main objective of the FCTC project as the need to maximise the brand exposure of FCTC by linking it to the journey to the Olympics for a 100 metre sprint athlete. An unreasonable requirement of the main objective for instance, would be to ensure that the athlete breaks records every alternate week. Any project manager will battle to ensure the athlete breaks records every alternate week in order to increase the brand exposure of the FCTC. This would appear to be a wish list instead of a project objective. The need exists for project objectives to be signed off in agreement by the parties involved in a legally binding contract. Even though there are many stakeholders involved in projects such as the FCTC example, it is important to remember that the customer is the one who pays the R5 million. FCTC should therefore receive the most beneﬁts (maximum brand exposure) from the start of the project until its completion. TOP TIP Ensure that you subscribe to correct ethical guidelines and that you embrace transparency when you are considering RFPs. 32 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection What does internal project commissioning involve? When the customer is within another department or strategic business unit of the same organisation, the project manager may refer to him/her as the project sponsor, instead of referring to him/her as the customer as described under external project commissioning earlier. The project sponsor will provide the direction and the funding for the project, but note that these funds are not sponsored from the project sponsor’s personal resources. Projects can also fail at the initiation phase, if no one champions the efforts required to solve an acknowledged project need. People may have reasons not to support a project, due to lack of interest or not wanting the project to succeed. It is therefore necessary for top level managers to help initiate the project and support its lifecycle. An example of an internal project in a business organisation includes the upgrade of a human resources management (HRM) software program commissioned by the ﬁnancial director. Since the ﬁnancial director will request and approve the funds from the business organisation’s annual budget, the funding is not provided by an external customer, but by an internal cost centre. The information technology director will be the project manager who has to ensure the migration from the old software being used to the new software package. The ﬁnancial director will beneﬁt from the project by, for example, receiving more accurate data on all employees who work ﬂexitime and those who take extended holidays without following leave application procedures. Formal project deﬁnition is still required although the customer is internal to the organisation. The world-class athlete in the FCTC example used in external commissioning earlier could be involved in an internal project when his or her athletics club appoints a project manager. For example, the main internal project objective could be to manage the logistics of the athlete who travels from one athletics event to the next. The athletics club can allocate a budget to be spent on logistics expertise to ensure that the athlete is not delayed at airports or in transit between ﬂights. This allows the athlete to focus only on improving Olympic qualifying times as deliverables. The result of achieving the best qualifying time can also have some direct beneﬁt for the athlete. He or she may be allowed to skip racing on the opening day of the Olympics, when most athletes are tired from traveling anyway. The athletics club will beneﬁt by having a higher ranked athlete on their membership list, which will raise the proﬁle of the club tremendously to attract future external funding. In the case of the athlete, successful completion of internal customer projects can lead to an external customer, such as FCTC, issuing the RFP for a branding project. This successful internal project spinoff beneﬁt is merely coincidental, but in reality, internal and external customers do not have to be linked in order for projects to be successful. 33 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection As long as project deﬁnition and initiation is clear and concise, both internal and external customers increase their chances of being satisﬁed through project management success. TOP TIP Line up powerful sponsors and champions in the workplace for your project. 34 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Commissioning a project Deciding whether to externally commission a project rather than conducting it in- house is mostly about whether to ‘outsource’ or not. There are a number of issues to consider: 1. Resource and skill availability: do I have the necessary skills and resources to complete the project inhouse? If I have the resources and skills, can I afford to move them from existing projects to the proposed project? If the answer is no in either scenario, then externally commissioning a project might be necessary. 2. What is the strategic signiﬁcance of the project? Projects with high strategic signiﬁcance which drive competitive advantage are usually done in-house. This is because of the intimate knowledge required of the organisation and its culture to ensure seamless integration, as well as the need to protect the project from being appropriated by another organisation. 3. What are the costs involved? Externally commissioning or outsourcing a project is often seen as more cost effective than doing the work internally. However, this isn’t always the case: a) Do you have internal capacity to spare? If you do, then the relative cost is already absorbed by your wage bill. If not, then the question is whether hiring extra staff is less costly than outsourcing. b) Outsourcing places an administrative burden on the organisation, since it requires managerial oversight. If you don’t have the capacity, a cost implication might be incurred. c) Is the contractor fully equipped to execute the work independently? If not, what additional resources would you have to contribute? In conclusion, the decision is a difﬁcult one. It is equally important to realise that a decision might be taken to outsource certain aspects of a project. Indeed, most organisations outsource at least some of their project work. The question, however, is ultimately one of capacity and affordability. 35 © 2021 DigitalCampus. All rights reserved Principles of Project Management Module 2: Project Feasibility and Selection Summary Projects can be commissioned externally or internally; external customers originate external to the project manager’s own organisation and can be a part of the private, public or not-for-proﬁt sectors. When the customer is within another department or strategic business unit (i.e. internal commissioning) of the same organisation, the project manager may refer to him/her as the project sponsor, instead of referring to him/her as the customer as described under external project commissioning earlier. The project sponsor will provide the direction and the funding for the project. 36 © 2021 DigitalCampus. All rights reserved

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