Hamiyet KARPUZCU- PROJECT SELECTION

PROJECT SELECTION

All projects have different   characteristics like different opportunities, benefits, risks etc. Companies should select the most suitable project for them. Companies  want the most profitable  project and use all their tools efficiently when they conduct their projects on the other hand organizations have limited resources and time and money pressures are the major effect for selecting project. In a nutshell   selecting true project among lot of alternatives is not an easy job. Project selection models and project selection criteria help managers in order to decide which project is the most reasonable for their organizations.

Project selection criteria and project selection models are different from each other. Project selection criteria are related to the product of project while project selection methods measure benefits of the project or they compare the measurable benefits of project among others (Heldman, 2004).  Project selection criteria and models may be marketing, financial or public perception sometimes contains all of them but sometimes contain only one.

Project   selection criteria are an input for project initiation process. According to guide to the PMBOK project selection criteria are concern with what the product or service of the project will produce and how it will benefit the organization. Also criteria contain the types of matter executive managers are commonly thinking about. This involves factors like financial benefits, returns on investment, market share, client retention and loyalty and public perceptions.  Ricardo Vargas says that selection criterion is not a single it is a set of criteria and he explain these criteria with multicriteria process.  Multicriteria process consists of financial criteria, strategic criteria, urgency criteria, stakeholder criteria, human resources criteria and risk criteria. Managers should not ignore one of criteria and all criteria should be evaluated. Evaluation of selection criteria are formed by individual opinion of selection committee.  For these reason the importance of the authority, political standing and individual aspirations of selection committee members should not be underestimated.(Heldman,2004)

 Project selecting models or project screening models allow organizations to make the best option among alternatives within the usual constraints of time and money. PMBOK guide states that selection methods   contain measuring value or attractiveness to the project owner. Also project selecting methods consist of considering the decision criterion and imply to calculate value under uncertainty. PMBOK guide examines project selection under two categories as benefit measurement methods and constrained optimization methods. Benefit measurement methods include that comparative approaches, scoring models, benefit contribution or economic models and constrained optimization methods include mathematical models using linear, nonlinear, dynamic integer and multi- objective programming algorithms.

Project selection models are capable of picking potential winners from the large set of possible project choices (Pinto, 2010).  There are five important issues which organizations consider when evaluating screening models. These are realism, capability, flexibility, ease of use, cost and comparability.

Realism: It refers that an impressive model should reflect objectives and strategic goals of organizations. Model should take into account the amount of capital, human resources and technical capacity available to the company. Also model must consider technical and commercial risk and including performance cost and time. (Tjahjana and others, 2009)

Capability:  A model should be elastic in order to react changes in the conditions under which projects are performed.  In other words capability is able to simulate different scenarios and optimize the decisions. For instance the model should allow the organization to analyze different types of projects like long term versus short term projects, project with different financial objectives or project with different capabilities

Flexibility:  The model should be easily modified if sample applications necessitate changes. For instance model should allow regulation by reason of any changes in tax laws, building codes or exchange rates.

Ease of Use:  The model should be simple for both all people of organization and all areas in organization. The preferences which are made for project selection should be clear and easily understood by all members of organizations. Additionally model should be timely and it should set up the screening information immediately and employees should able to understand this information without any special education or skills.

Cost: The model also should be cost effective. Data gathering and modeling cost should be low relative to the cost of the project.

Comparability:  It should be extensive to be implemented to multiple projects.  A useful model should promote general compare of project alternatives.  If the model is too narrowly focused it may not useful in comparison of potential projects or foster biases against others.

There are two predominant   types of project selection models. These are numeric and non-numeric models. (Burke, 2003) Numeric models pursue to use numbers as inputs for the decision process included in selecting projects and values can be obtained from both objectively and subjectively. Otherwise numeric models are subdivided as financial models and scoring models according to Sekelani Banda.  Financial models contain payback period, return on investment, net present value and internal rate of return.  Also financial models can be named as profitability model.

Non numeric modals do not use numbers as input for decision making. The sacred cow, the operating necessity, competitive necessity, product line extension and comparative benefit model are types of non-numeric modals.

The Sacred Cow:  In this case the project is suggested by a senior or powerful official in the organizations. Sacred means that will be maintained until successfully concluded, or until the boss, personally, recognizes the idea as a failure and terminates it. Element enjoys adopted managers protection whose confirmation present the action to create the project.

The Operating Necessity:  If the project is needed in spite of controlling the system operating and if the system worth saving the estimated cost of the project, project cost will be checked in order to make sure they kept as low as is persistent with project success, however the project will be funded. Sustaining operational functionality more important than cost at crisis atmosphere.

The Competitive Necessity:  The decision to take on a project is based on a will to continue the organization’s competitive position in the sector. But only few companies volunteer to sacrifice market share after great cost and time spent. If response against to competitive threat is not active, project will encounter difficulty in alignment with strategic goals of organization.

Product Line Extension:  A project to develop and present new products judged on the degree to which it fits the firm’s current product line, fills a gap, strengthens a weak link, or extends the line in a new, desirable direction.  Marketing try product extensions or product modification to reposition the product or service preferably with clients. These decisions could be made intuitively without requiring too much analysis (Kureshi, 2001).

Comparative Benefit Model:  This situation refers to an organization has many projects for selecting however projects do not have easily comparable components. In such a case selection of project should be made by a team of managers who decide to seek the project which has the most suitable.

Checklist model, Simplified scoring models, Analytic hierarch process, Profile models and Financial models are more common project screening approaches and these models will be explained separately.

Organizations spend lots of time and effort trying to make the best project selection decisions possible. The factors which are listed below can be considered when evaluating project alternatives. These factors are generalized under risk and commercial factors, internal operating issues and other factors. This list is only a partial of list of various elements because a company must deal with more components when encountering new project alternatives.

Risk	Commercial	Internal operating ıssues	Additional factors
Techical risk	Expected return of investment	Need to develop (train employees)	Patent protection
Financial risk	Paybak period	Change in workforce size or compasition	Impact on company’s image
Safety risk	Potential market share	Change in physical environment	Strategic fit
Quality risk	Long-term market dominance	Change in manufacturing or service operations resulting from project
Legal exposure	Initial cash outlay
	Ability to generate future business or new markets