7.2 Strategic Planning and Project Selection


Selecting the right project is a key factor in determining its success.
Leaders and project managers should take into consideration the organization's strategies when selecting projects, to ensure that it support the organization's goals and objectives.
The process of project selection includes three main stages which are: Strategic planning, identifying potential projects and selecting projects.
Each stage will be described next in the context of IT projects.

Strategic Planning
Strategic Planning involves determining long-term objectives, which will aid in identifying potential projects.
Strategic Planning is carried out through:
Analyzing Strengths, Weaknesses, Opportunities and Threats (SWOT).
Forecasting future trends.
Projecting the need for new products and services.

7.2 Strategic Planning and Project Selection


Identifying Potential Projects
The Initiation Process Group (discussed in Lecture 5) starts with identifying which projects to work on.
Normally, a four-stage planning process is followed by organizations to identify potential projects (see Figure 7.1).
These stages are also typical for identifying Information Technology potential projects, as follows:
Information Technology Strategic Planning: this is the first stage of the Planning Process. It defines key business areas as well as tying the information technology strategy to the overall organization's strategic plan.
Business Area Analysis: key business processes for achieving the strategic goals are outlined, to determine which will benefit from Information technology.
Project Planning: potential projects that address the business strategies are defined at this stage as well as discussing the projects' scope, schedule, potential budget, anticipated benefits and constraints.
Resource Allocation: the final stage involves selecting the Information Technology projects and assigning required resources to carry out the work on them.

7.2 Strategic Planning and Project Selection


Figure 7.1 The Four-Stage Planning Process for selecting Information Technology Projects.

7.2 Strategic Planning and Project Selection


Identifying Potential Projects
After identifying potential projects, an organization selects the ones with the most benefits. There are a number of methods used for project selection. The most common are:
Focusing on broad Organizational Needs: Projects that address broad organizational needs are more likely to be successful. One of the methods used to select projects based on the broad organizational needs, is to check whether they meet the following criteria:
Need: does the organization agree that the project needs to be done?
Funding: does the organization have the capacity to fund the project?
Will: is there a strong will to make the project succeed?
Categorizing Information Technology Projects: this method is based on various categorizations, mainly:
The Impetus for the project: the impetus normally addresses and responds to problems preventing the organizations from achieving their goals, opportunities to improve the organization or directives imposed by the management or external influences.
The Time Window for the project: this is the time required to finish the project. Potential identified projects that can't meet the set date will be eliminated, whereas potential projects that can be completed quickly will be prioritized.

7.2 Strategic Planning and Project Selection


The General Priority for the project: potential identified projects will be prioritized as high, medium and low based on the current business situation. High-priority projects should be completed first even if the medium and low-priority projects take less time to be completed.
Performing Net Present Value or Other Financial Analysis: selecting a project is also based on the financial aspects related. There are three primary methods for determining the projected financial values of the identified potential projects:
Net Present Value (NPV) Analysis: this method calculates the difference between the present value of cash inflows and the present value of cash outflows. NPV is used to analyze the profitability of an investment or project. Projects with positive NPV (returns of the project exceeds the capital cost) are only considered.
Return On Investment (ROI) Analysis: this method subtracts the project's costs from the benefits and then divides it by the costs. Therefore, the ROI is always a percentage, which could be positive or negative. The higher the ROI the better. ROI= (total benefits - total costs)/costs
Payback Analysis: this method calculates the payback period. The payback period is the amount of time it will take to regain the total amount of money invested in the project in the form of cash inflows. Therefore, this method determines the amount of time before accumulated benefits take over accumulated and continuing costs.

7.2 Strategic Planning and Project Selection


Using a Weighted Scoring Model: this method provides a systematic process for project selecting based on different criteria, such as:
Meeting the broad organizational needs.
Addressing problems, opportunities and directives.
The Time Window for the project.
The Priority of the project.
The Projected Financial Performance. It is important to develop the most important and related criteria for the project selection process. This is normally done through brain storming or groupware sessions. Common criteria for information technology projects:
Supports key business objectives.
Has strong internal sponsor.
Has strong customer support.
Uses realistic level of technology.
Can be implemented in one year or less.
Provides possible NPV.

7.2 Strategic Planning and Project Selection


Has low risk in meeting scope, time and cost goals.
Implementing a Balanced Scorecard: This methodology was developed by Robert Kaplan and David Norton in 1996. It translates the organization's vision and strategy into a series of performance measures. These measures are later analyzed to help evaluate how well projects meet the strategic objectives. This method:
Align the business activities to the strategy of the organization.
Improve internal and external communications.
Monitor organization performance against strategic goals.