Project Selection and Prioritization

Project Selection and Prioritization

How does a truly global company with fewer than 200 associates achieve

noteworthy results and market leadership? Certainly strong and talented

people are a key part of the answer. A good set of leadership and

management tools and processes, and the discipline to use them, is

another key. A small, privately held company in Louisville, Kentucky has

been fortunate to use both talent and process to achieve success by any

measure. That company is D. D. Williamson.

D. D. Williamson was founded in 1865 and today is a global leader in

non-artificial colors. Operating nine facilities in six countries and supplying

many of the best-known food and beverage companies around the world,

D. D. Williamson has more complexity to manage than most companies,

regardless of their size.



After completing this

chapter, you should

be able to:

• Describe the strategic

planning and portfolio

alignment processes.

• Itemize strengths and

weaknesses of using

financial and scoring

models to select


• Describe how to select

and prioritize projects as

an outgrowth of strategic


• Given organizational

priorities and several

projects, demonstrate

how to select and

prioritize projects using a

scoring model.

• From a contractor’s

viewpoint, describe how

to secure projects.

Robert Llewellyn/Image State/Alamy


Late in 2004, the company was embarking on a new vision to double

growth and profitability in five years and identified the need to improve

project management as a key strategy to achieve the vision. Our

weakness was twofold—we had too many projects that were

championed as important, and the projects that were active were

sometimes late, over budget, and not achieving the predicted results. We

began with prioritization, creating a prioritization matrix to select 16 “critical

projects” that would have senior leadership sponsors and be assigned

trained and capable project managers to improve our execution.

The prioritization matrix was a great initial step to narrow our focus and

improve our results—overall project completion improved. However, 16

projects meant that the scope and impact of projects still had wide

variation. Smaller, more simple projects were likely to be executed

brilliantly and improve our total percentage of “on time and on target”

projects, but if the project that was late or over budget was very high

impact, we were still leaving opportunities for growth and profitability “on

the table.”

In 2009, we made more changes to our prioritization process, selecting

no more than five “Vision Impact Projects” (VIPs) that would get high-level

focus and attention—monitoring and asking for corrective measures in

weekly senior management meetings, tracking online in our project

management system for our Continuous Improvement Manager, and

funneling time and resources to help when projects get off course.

The results are dramatic—large and complicated projects are getting

the attention and resources and are hitting our strategic target of “on

time, on budget and on target” regularly. Our successes have positioned

D. D. Williamson to continue to do what we do best—serve customers

effectively, grow our business, and return strong financial results to

ensure a solid future for the business.

Elaine Gravatte, Chief People Officer and North American President, D. D. Williamson


& Initiating

Charter Kick-off Project


Planning Executing Closing &




• Portfolio management

• Program management

• Projects and strategic


• Source selection criteria

• Project statement

of work

• Business case


2.1 Strategic Planning Process

One of the tasks of a company’s senior leadership is to set the firm’s strategic direction.

Some of this direction setting occurs when an organization is young or is being revamped,

but some needs to occur repeatedly. Exhibit 2.1 depicts the steps in strategic

planning and how portfolio management should be an integral part.

Strategic Analysis

The first part of setting strategic direction is to analyze both the external and internal

environments and determine how they will enhance or limit the organization’s ability

to perform. This strategic analysis is often called strengths, weaknesses, opportunities,

and threats (SWOT). The internal analysis (elements within the project team’s control)

consists of asking what strengths and weaknesses the organization possesses in itself. The

external analysis (elements over which the project team has little or no control) consists

of asking what opportunities and threats are posed by competitors, suppliers, customers,

regulatory agencies, technologies, and so on. The leaders of an organization often need to

be humble and open to ideas that are unpleasant when conducting this analysis. Performed

correctly, a strategic analysis can be very illuminating and can suggest direction

for an organization. An example of SWOT analysis for the Built Green Home at Suncadia

is shown in Exhibit 2.2. (The Built Green Home at Suncadia, Washington, was developed

using advanced sustainability concepts and a large degree of stakeholder

involvement. A more detailed description of this house appears in Chapter 5.)

Guiding Principles

Once the SWOT analysis is complete, the organization’s leadership should establish

guiding principles such as the vision and mission. Some organizations break this step

into more parts by adding separate statements concerning purpose and/or values. Often,



Flow-Down Objectives

Strategic Objectives

Strategic Analysis

Guiding Principles:

Vision & Mission

Portfolio Alignment

28 Part 1 Organizing Projects

these sections are included in the mission. For simplicity’s sake, they will be treated as

part of the mission in this book. It is more important to understand the intent of each

portion and achieve it rather than worry about the exact format or names of individual


VISION The vision should present a “vivid description of a preferred future.”1 It should

be both inspiring and guiding, describing the organization as it can be in the future, but

stated in the present tense. A clear and compelling vision will help all members and all

stakeholders of an organization understand and desire to achieve it. Visions often require

extra effort to achieve but are considered to be worth the effort. Visions are often multiyear

goals that, once achieved, suggest the need for a new vision.

One of the visions most often cited, because it was so clear and compelling, was President

John F. Kennedy’s goal of placing a man on the moon before the end of the 1960s.

Kennedy set this goal after Russia launched Sputnik and the United States found itself

behind in the space race. His vision was very effective in mobilizing people to achieve it.

A more recent example was in 2009 when hundreds of community leaders in Cleveland,

Ohio, decided to use a systems approach to guide many interrelated social and economic

efforts in their region. The vision they stated is to become the “green city on the

blue lake.”2 They use this vision to guide regional leaders as they choose where to invest

their time and resources in bettering the region and life for its residents.

Increasingly companies are incorporating the triple bottom line into their vision statements.

This approach emphasizes the social, environmental, and economic health of all

of the company’s stakeholders rather than a narrow emphasis only on the economic return

for shareholders. This stated desire to be a good corporate citizen with a long-term

view of the world can motivate efforts that achieve both economic return for shareholders

and other positive benefits for many other stakeholders.




Green building has a buzz

Seattle has a strong green building community


Strong community support

Growth in green building projects that

demonstrate value

Need to provide numbers on green building value

Committed developer and builder

Green building has not reached mainstream

Limited project resources community

Distance away from Seattle

Green building is perceived to be costly

High cost of green projects


Uniqueness of product


Community surrounding house

Lack of data on green building (wealth) value

Existing thinking on green building and its

niche focus

Building schedule

Community (location)


Source: Brenda Nunes, developer, BuiltGreen Home at Suncadia.

Chapter 2 Project Selection and Prioritization 29

MISSION STATEMENT The vision should lead into the mission statement, which is a

way to achieve the vision. The mission statement includes the “organization’s core purpose,

core values,”3 beliefs, culture, primary business, and primary customers. Several of these

sections may flow together in the mission statement and, sometimes, an overall statement

is formed with expanded definitions of portions for illustration. The rationale for including

each section (either as one unified statement or as separate statements) is as follows:

• By including the organization’s purpose, the mission statement communicates why

the organization exists.

• By including the organization’s core values, a mission statement communicates how

decisions will be made and the way people will be treated. True organizational values

describe deeply held views concerning how everyone should act—especially

when adhering to those values is difficult.

• By including beliefs, a mission statement communicates the ideals for which its leaders

and members are expected to stand. Beliefs are deeply held and slow to change,

so it is quite useful to recognize them as they can either help or hinder an organization’s

attempt to achieve its vision.

• By including the organization’s culture, the mission statement instructs members to

act in the desired manner.

• By including the primary business areas, everyone will know in what business the

organization wishes to engage.

• By identifying the primary customers, everyone will understand which groups of

people need to be satisfied and who is counting on the organization. The mission

needs to be specific enough in describing the business areas and customers to set

direction, but not so specific that the organization lacks imagination. An example of

a vision and mission statement from Cincinnati Children’s Hospital Medical Center

is shown in Exhibit 2.3.





Cincinnati Children’s Hospital Medical Center will be the leader

in improving child health.

Mission Statement

Cincinnati Children’s will improve child health and transform delivery of care

through fully integrated, globally recognized research, education and

innovation. For patients from our community, the nation and the world,

the care we provide will achieve the best:

• Medical and quality of life outcomes

• Patient and family experiences and

• Value

today and in the future.

Source: Cincinnati Children’s Hospital Medical Center,

htm, accessed June 28, 2007.

30 Part 1 Organizing Projects

Strategic Objectives

With the strategic analysis, mission, and vision in place, leaders turn to setting strategic

objectives, which should be means of achieving the mission and vision. For most organizations,

this strategic alignment of objective setting occurs annually, but some organizations

may review objectives and make minor revisions at three- or six-month intervals.

While the planning is normally performed annually, many of the strategic objectives

identified will take well over one year to achieve. The objectives describe both short- and

long-term results that are desired along with measures to determine achievement.

Organizations that embrace a triple bottom line in their guiding values will have objectives

promoting each bottom line, and projects that are selected will contribute toward

each. These objectives should provide focus on decisions regarding which projects to

select and how to prioritize them since they are an expression of the organizational focus.

Many writers have stated that for objectives to be effective, they should be “SMART—that

is specific, measurable, achievable, results-based, and time-specific.”4 An example of

strategic objectives from Midland Insurance Company is shown in Exhibit 2.4.

Flow-Down Objectives

Once an organization’s strategic objectives are identified, they must be enforced. Some

objectives may be implemented by work in ongoing operations. However, projects tend

to be the primary method for implementing many objectives. If the organization is relatively

small, the leaders may proceed directly to selecting projects at this point. Larger organizations

may elect a different route. If the organization is so large that it is impractical

for the overall leaders to make all project selection decisions, they might delegate those

decisions to various divisions or functions with the stipulation that the decisions should

be aligned with all of the organization’s strategic planning that has taken place to this

point. Regardless of whether the organization is small and the top leaders make all project

selection decisions or whether the organization is large and some of the decisions are cascaded

one or more levels down, several methods of project selection may be used.

2.2 Portfolio Alignment

Companies that use a strategic project selection process to carefully align projects with

their organizational goals will find they tend to be more successful at completing their












Source: Martin J. Novakov, American Modern Insurance Group.

Chapter 2 Project Selection and Prioritization 31

projects and deriving the expected benefits from them. Project success at these companies

is measured by how much the project contributes to the organization’s objectives

(business needs) as well as the traditional measures of staying within budget and schedule

and achieving the specific technical goals promised at the start of the project so as to

obtain a desired return on investment.

This project portfolio alignment is very similar to financial portfolio alignment from a

company’s perspective. In a financial portfolio, efforts are made to diversify investments

as a means of limiting risk. However, every investment is selected with the hope that it

will yield a positive return. The returns on each investment are evaluated individually,

and the entire portfolio is evaluated as a whole.

For ease of understanding how various work is related, many organizations utilize an

approach of classifying portfolios, programs, projects, and subprojects. Not all companies

use all four classifications, but understanding how they are related helps one see where

any particular portion of work fits in the organization.


Organizations require many work activities to be performed, including both ongoing operational

work and temporary project work. Large organizations often have many projects

underway at the same time. A portfolio is “a collection of projects or programs

and other work that are grouped together to facilitate effective management of that

work to meet strategic business objectives. The projects or programs of the portfolio

may not necessarily be interdependent or directly related.”5 Each project in the portfolio

should have a direct impact on the organization. Put another way, an organization’s leaders

should identify the organization’s future direction through strategic planning. Then

multiple possible initiatives (or projects) can be identified that might help further the

organization’s goals. The leaders need to sort through the various possible projects and

prioritize them. Projects with the highest priority should be undertaken first. Organizations

typically try to have a sense of balance in their portfolios. That is, an organization

includes in its portfolio:

• Some large and some small projects

• Some high-risk, high-reward projects and some low-risk projects

• Some projects that can be completed quickly and some that take substantial time to



A program is “a group of related projects managed in a coordinated way to obtain benefits

and control not available from managing them individually. Programs may include

elements of work outside of the scope of discrete projects in the program.”6 Programs

often last as long as the organization lasts, even though specific projects within a program

are of limited duration. For example, the U.S. Air Force has an engine procurement

program. As long as the Air Force intends to fly aircraft, it will need to acquire

engines. Within the engine program are many individual projects. Some of these projects

are for basic research, some are for development of engines, and others are for purchasing

engines. Each project has a project manager, and the entire program has a program

manager. While the project managers are primarily concerned with the tradeoffs of cost,

schedule, scope, and quality on their individual projects, the program manager is concerned

with making tradeoffs between projects for the maximum benefit of the entire

program. To avoid confusion, programs deal with a specific group of related projects,

while a portfolio deals with all of an organization’s projects. A portfolio can include multiple

programs as well as multiple projects.

32 Part 1 Organizing Projects

While the leadership group of a company may make portfolio decisions and delegate

the program management decisions to a program manager, both portfolios and programs

are managed at a level above the typical project manager. For practical purposes,

project managers should attempt to understand how both portfolio and program decisions

impact their projects and then spend most of their efforts focused on their


Projects and Subprojects

Just as a program is made up of multiple projects, a large project may be composed of

multiple subprojects. A subproject is “a smaller portion of the overall project created

when a project is subdivided into more manageable components or pieces.”7 If the project

is quite large, individuals may be assigned as subproject managers and asked to manage

their subproject as a project. Some of those subproject managers may even work for

another company. The project manager needs to coordinate the various subprojects and

make decisions that are best for the overall project. Sometimes this may require that a

particular subproject be sacrificed for the greater project good. The relationships among

a portfolio, programs, projects, and subprojects are illustrated in Exhibit 2.5.

Because projects are frequently performed in a fast-paced environment, it is helpful if

they can be guided by organizational priorities. Some of the most typical reasons for

project failure are:

• Not enough resources

• Not enough time

• Unclear expectations

• Changes to the project

• Disagreement about expectations

The first step in overcoming these problems is to carefully align potential projects

with the parent organization’s goals. While many companies are motivated to align projects

with organizational goals for these benefits, an additional reason for companies that

sell to the government is that the U.S. Federal Office of Management and Budget in 2003

mandated that “federal agencies show that IT projects align with top-level goals for



Company Portfolio

Program Alpha Program Beta





Project 3

Subproject 3.1

Subproject 3.2

Chapter 2 Project Selection and Prioritization 33

government efficiency and service.”8 This was the introduction of the Sarbanes-Oxley requirements.

All publicly traded companies must now follow certain guidelines that require

some sort of financial decision model to be made in deciding to do a project.

A project portfolio is a collection of projects grouped so they can be collectively managed.

A project portfolio is similar to the set of classes a student takes in a given term.

Each class contributes toward degree requirements. Most students will choose to take a

mix of some easy and some hard classes rather than all hard classes at the same time. In

the same way, all projects in a portfolio are selected to contribute toward the organization’s

goals, and a mix of some high-risk, high-reward projects and some easy projects is


When managers assess the organization’s ability to perform projects and then identify,

select, and prioritize a portfolio of projects and other work that they believe will

help the organization achieve its strategic goals, they are performing portfolio alignment.

Portfolio alignment helps an organization achieve its goals by “removing duplicated project

efforts, ironing out inconsistencies between project scopes, and improving the mix

and scheduling of projects.”9 While the majority of the portfolio alignment activities

may be conducted by a team of senior executives, project managers should understand

how their specific projects are aligned with the organization’s objectives since they will

need to either make or provide input on many decisions.

When companies consider their entire portfolio of work, they sometimes envision

projects as means of developing knowledge that can be capitalized upon in ongoing

work processes to provide profit, as shown in Exhibit 2.6.

In times when the economy is poor, many companies straggle to get enough business.

In such an environment, some firms might accept almost any work they can get. Even

during bleak economic times, however, one should be careful how internal projects are

selected since selecting one project limits resources (money, people, etc.) available to



Kn to $S Little Kn Reliable Kn

Knowledge Continuum


Basic R&D;

Customer Research

M&A Due Diligence


Competitive Strategy;

Product Development;

Market Entry;

Channel Strategy

Incremental Process Improvements















Inbound Logistics


Outbound Logistics

Sales and Marketing

Customer Service



Human Resources


New Projects Portfolio


Current Kn

Both projects and processes are intertwined to create sustainable value.

Source: Chinta, Ravi and Timothy J. Kloppenborg, “Projects and Processes for Sustainable Organizational Growth,”

SAM Advanced Management Journal 75 (3) (Spring 2010), p. 24.

34 Part 1 Organizing Projects

other projects. During good or bad economic times, people should take the same care

with external projects—ensure that they are consistent with the organization’s goals.

Assessing an Organization’s Ability to Perform Projects

Assessing an organization’s strengths and weaknesses is an essential part of aligning

projects with the organization; if an organization does not have the right capabilities, a

project that may otherwise support organizational goals may be too difficult to successfully

complete. Some questions to ask regarding a firm’s ability to support projects are as


• Do we have a teamwork attitude, free and open communication, creativity, and

empowered decision making?

• Do we have a clearly defined project management process?

• Do our associates have the right attitudes, skills, and competencies to use the project

management process?

• Are our leaders at each level willing to take appropriate personal risk?

• Does senior leadership establish a strong leadership foundation?

• Do individuals and teams exhibit leadership at their respective levels?

• Do we monitor and understand our external environment?

Identifying Potential Projects

The second part of aligning projects with the firm’s goals is to identify potential projects.

These potential projects can be in response to a market demand, business need, customer

request, legal requirement, or technological advance.10 Ideally, this is accomplished in a

systematic manner—not just by chance. Some opportunities will present themselves to

the organization. Other good opportunities will need to be discovered. All parts of the

organization should be involved. This means people at all levels, from front-line workers

to senior executives, and people from all functional areas need to help identify potential

projects. For example, salespeople can uncover many opportunities by maintaining open

discussions with existing and potential customers, and operations staff may identify potential

productivity-enhancing projects. Everyone in the firm should be aware of industry

trends. Many industries have trade journals such as Elevator World or Aviation Week

and Space Technology that can be read regularly for potential project ideas. One reasonable

goal is to identify approximately twice as many potential projects as the organization

has time and resources to perform. Under close examination, some potential

projects may not be a good fit. Any company that accepts practically every potential

project will probably waste some of its resources on projects that do not support its organizational


Once potential projects are identified, the next step is to develop a brief description of

each. The leadership team that will select and prioritize projects needs to understand the

nature of the projects they are considering. While the level of documentation different

firms require varies greatly, a bare minimum can be called the elevator pitch. This is

when a person meets another waiting for an elevator and asks “I hear you are on XYZ

Project. What is it all about?” The responder may have only a brief time to give a reply

before the elevator arrives and must be prepared to answer quickly with simple statements

about the project work and why it is important to the organization. The work is

often summarized in a brief statement of work, which is a “narrative description of products

or services to be provided by the project.”11 Why the project is important is often

summarized as a business case, which “provides the information needed from a business

standpoint to determine if the project is worth the investment.”12 The business case

Chapter 2 Project Selection and Prioritization 35

generally includes both why the project is needed and, if the firm uses financial justification

as part of project selection, an estimate of costs and benefits. Armed with this “elevator

pitch,” the series of processes that collectively are used to select, prioritize, and

initiate projects begins as shown in Exhibit 2.7. The rectangles represent work processes

and the documents represent inputs into and deliverables out of the work processes.

Some of this work will be described in Chapters 4 and 5.

Methods for Selecting Projects

The people in charge of selecting projects need to ensure overall organizational priorities

are understood, agreed upon, and communicated. Once this common understanding is

in place, it is much easier to prioritize potential projects. The degree of formality used

in selecting projects varies widely. In a small company, it can be straightforward. The

prioritization should include asking questions such as these:

• What value does each potential project bring to the organization?

• Are the demands of performing each project understood?

• Are the resources needed to perform the project available?

• Is there enthusiastic support both from external customers and from one or more

internal champions?

• Which projects will best help the organization achieve its goals?

There are several different methods of systematically selecting projects. The methods

include both financial and scoring models. The primary reason for including financial

analysis—either to make the project selection decisions directly or to at least assist in

the decision making—is that, from management’s perspective, projects are investments.

Therefore, proper selection should yield a portfolio of projects that collectively contribute

to organizational success.

Three different approaches are commonly used to ensure both financial and nonfinancial

factors are considered when selecting projects. First, some organizations use financial

analysis as the primary means of determining which projects are selected, and

management merely tempers this with informal inclusion of nonfinancial factors. Second,

some organizations use financial models as screening devices to qualify projects or

even just to offer perspective; qualified projects then go through a selection process using

a scoring model. Third, at still other organizations, financial justification is one factor

used in a multifactor scoring model. The common thread in all three of these approaches





Select &



(Ch. 2)




(Ch. 4)



(Ch. 5)



(Ch. 5)

Draft Scope

Overview &

Business Case,

Project Priority







36 Part 1 Organizing Projects

is that both financial and nonfinancial factors are considered when selecting projects. Let

us consider both financial and scoring models. Financial models will be covered in concept,

but the calculations will not be shown since they are explained in depth in most

required finance courses. Scoring models will be covered in both concept and calculation

since many students might not have them in another course.

Using a Financial Model to Select Projects

Financial models generally compare expected project costs to expected project benefits.

Several financial models can be used in making project selection decisions.

NET PRESENT VALUE (NPV) Net present value (NPV) is the most widely accepted

model and will be covered first. When using net present value, the analyst first discounts

the expected future value of both the project costs and benefits, recognizing that a dollar

in the future is worth less than a dollar today. Then the analyst subtracts the stream of

discounted project costs from the stream of discounted project benefits. The result is the

net present value of the potential project. If the net present value is positive, then the

organization can expect to make money from the project. Higher net present values predict

higher profits. See the summary in Exhibit 2.8.

BENEFIT-COST RATIO (BCR) A second financial model sometimes used is benefit-cost

ratio (BCR). The ratio is obtained by dividing the cash flow by the initial cash outlay.

A ratio above 1.0 means the project expects to make a profit, and a higher ratio than

1.0 is better.

INTERNAL RATE OF RETURN (IRR) The third financial model is internal rate of return

(IRR). In this model, the analyst calculates the percentage return expected on the project

investment. A ratio above the current cost of capital is considered positive, and a higher

expected return is more favorable.

PAYBACK PERIOD (PP) The fourth financial model that is sometimes used is the payback

period (PP). In this analysis, a person calculates how many years would be required

to pay back the initial project investment. The organization would normally have a stated

period that projects should be paid back within, and shorter payback periods are more












Calculation PV revenue _ PV


Cash flow/Project


Percentage return on

project investment

Project costs/

Annual cash flows

Neutral Result NPV ¼ $0 Ratio ¼ 1.0 IRR ¼ Cost of capital Payback period ¼

Accepted length

If used to screen

projects or to select

projects outright

NPV > Acceptable


Ratio > Acceptable


IRR > Acceptable


Payback period <

Acceptable length

If used to compare


Higher NPV better Higher ratio better Higher IRR better Shorter payback

period better

Chapter 2 Project Selection and Prioritization 37


useful in ensuring that selected projects make sense from a cost and return perspective.

Several models have weaknesses that need to be understood before they are used. For

example, payback period models do not consider the amount of profit that may be generated

after the costs are paid. Thus, two projects with a similar payback period could

look equal, but if one has substantially higher revenue after the payback period, it would

clearly be superior. BCR would not be acceptable unless all costs and benefits were calculated

in present dollars (in which case it is similar to NPV except it is a ratio of benefits

to cost instead of the difference between revenue and cost). IRR and BCRs have

problems if used for choosing between mutually exclusive projects because they can favor

smaller projects that create less total value for the firm but have high percentage returns.

For example, a huge project with a medium rate of return would create a lot of value for

a firm but might not be picked over a smaller project with a higher return if only one

can be chosen. Additionally, it is sometimes quite difficult to calculate an IRR if a project

has nonconventional cash flows. For the most part, the finance field recommends using

net present value. The other measures can be calculated to provide perspective on

whether a project passes a minimum financial return threshold or to communicate with

people who might not understand NPV.

However, none of the financial models ensure alignment with an organization’s strategic

goals. Therefore, financial analysis, while very useful, is normally not enough. Decision

makers need to also consider how well a project fits according to additional factors.

They will often use a scoring model for this purpose. Sometimes, a scoring model used in

this fashion is called a project selection and prioritization matrix.

Using a Scoring Model to Select Projects

In addition to ensuring that selected projects make sense financially, other criteria often

need to be considered. A tool called a scoring model helps to select and prioritize potential

projects. It is useful whenever there are multiple projects and several criteria to be


IDENTIFYING POTENTIAL CRITERIA These criteria should include how well each

potential project fits with the organization’s strategic planning. The criteria may also

include such items as risk, timing, resources needed, etc. A normal practice is for the

company’s leadership team to jointly determine what criteria will be used to select projects.

Midland Insurance Company uses the three objectives of profit, growth, and people

as shown in Exhibit 2.4. A list of questions executives may use to develop their list of

criteria is shown in Exhibit 2.9.

DETERMINING MANDATORY CRITERIA Once the leadership team agrees on a list of

criteria that are important, the next step is to determine whether any of the criteria are

mandatory. That is, are there any situations that dictate a project must be chosen regardless

of any other considerations? Examples of this include government mandates and

clear safety or security situations. This list of “must do” projects should be kept as small

as possible since these projects automatically get selected and can crowd out other

worthwhile projects.

WEIGHTING CRITERIA Next, the leadership team determines the relative importance

or weight of each decision criteria. While more complex methods of determining criteria

weights and project evaluations have been used in the past, many firms now use the

simple methods described here for determining criteria weights. See Exhibit 2.10 for an

example of project evaluations. First, executives determine which criterion is most

38 Part 1 Organizing Projects

important and give that a weight of 10. Then they ask how important in comparison

each of the other criteria is. For example, if the executives in a consumer products company

thought development of new products was most important, it would be assigned a

weight of 10. If the customer relations factor was deemed almost as important as new

product development, maybe it would be assigned 8. If the factors of supplier relations

and probability of project success were each deemed to be half as important as new

product development, each would be assigned 5. Perhaps other criteria such as cost reduction,

safety, and so forth were also considered but determined to not be as important.

The resulting criteria with weights are shown in Exhibit 2.10 in the top row of the selection

and prioritization matrix. Most organizations will decide to use about three to five

criteria. Lesser-rated criteria can be used as tie breakers if needed.

EVALUATING PROJECTS BASED ON CRITERIA Now the leadership team evaluates

each project on each criterion. The most efficient and accurate method is to concentrate

on one criterion at a time, going down each column in turn. An easy method for this is

to rate each project on that particular criterion with scores ranging from 1 (potential



How well does this project fit with at least one organizational objective?

How many customers are there for the expected results?

How competitively can the company price the project results?

What unique advantages will this project provide?

Does the company have the resources needed?

What is the probability of success?

Are the data needed to perform the project available or easily collected?

Do the key stakeholders agree that the project is needed?

What is the expected return on investment?

How sustainable will the project results be?

How does this project promote (or hinder) our corporate social responsibility?

What risks are there if we do not perform this project?



Project A

Project B

Project C

Project D


Total Score






Project\Criteria Relations

& Weight



10 8 5 5

Chapter 2 Project Selection and Prioritization 39

project has very little or even negative impact on this criterion) to 5 (project has excellent

impact on this criterion). The upper left portion of each cell in the matrix can display

the rating, representing how well that project satisfies that criterion.

Once a project has been rated on a particular criterion, that rating should be multiplied

by the weight assigned to that criterion and displayed as the weighted score in the

main body of each cell. The total for each project should be added across the row. The

highest-scoring projects would ordinarily be selected. If several projects have close scores

(virtual ties), either other criteria or discussion can be used to break the tie. For example,

in Exhibit 2.11, there is a virtual tie between Projects A and B.

SENSITIVITY ANALYSES Scoring models allow leadership teams to perform sensitivity

analyses—that is, to examine what would happen to the decision if factors affecting it

were to change. Selection criteria may be added or altered. Participants may decide that

some criteria are more important than others and weight them accordingly. Missing criteria

or new alternatives can be added and the decision revisited. For example, if the executive

team evaluating the projects in Exhibit 2.11 had a bad experience with an

unsuccessful project and decided to reevaluate their decisions with success probability

now weighted a 9 for very important, the new project selection and priority matrix

would be calculated as shown in Exhibit 2.12.

Decision makers can ensure that they use very solid ratings for each potential project.

For example, if one criterion was the number of customers, the marketing department

could interview some potential customers to gauge their level of interest.

A company might want to select several projects. If so, the scores from the selection

matrix could serve as one method of prioritizing the projects.

Prioritizing Projects

Once all projects have been selected, they will need to be prioritized—that is, the decision

makers will need to determine which ones will get assigned resources and be scheduled

to begin first. If a company selects a number of projects for a year (or even for a

fiscal quarter), it cannot possibly expect to start all of them at the same time. The scoring

models are very useful in providing input into the starting order of projects. Most leadership

teams will consider the weighted scores of each project as a starting point in



Project A

Project B

Project C

Project D


Total Score






Project\Criteria Relations

& Weight



10 8 5 5

50 24 20 25

40 24 25 25

10 40 15 15

20 32 5 10





















40 Part 1 Organizing Projects

assigning resources to projects and determining their start dates. The leadership team

members, however, also generally discuss other issues such as:

• The urgency of each project

• The cost of delaying the expected benefits from various projects

• Practical details concerning the timing

For example, an important process improvement project may be far less disruptive to

perform when the factory is shut down for routine maintenance. One more discussion

frequently occurs in the prioritizing process—if there is a conflict between resource needs

for two projects, which one gets the needed resources first? Often, this is left to the project

sponsors to iron out; for especially important projects, it may be formally decided by

the leadership team. In that way, the probability of the critical project being held up by a

misunderstanding is greatly decreased.

Exhibit 2.13 shows how the Alternative Breaks (AB) planning committee at a university

ranked spring break projects. This exhibit shows four of the twenty-six projects that

were selected for trips. This book will include multiple examples of the AB project to

illustrate how various project planning tools work together. Each trip is a small project

while the combination of all twenty-six trips form the overall project.



Project A

Project B

Project C

Project D


Total Score






Project\Criteria Relations

& Weight



10 8 5 9

50 24 20 45

40 24 25 45

10 40 15 27

20 32 5 18





















Source: Chris Bridges.









9 10 6 5 Total

New York Vegan Farm 5









West Virginia Sustainability 4









Chicago Halfway House 2









El Salvador Cultural Immersion 1









Chapter 2 Project Selection and Prioritization 41

2.3 Securing Projects

The discussion above pertains to projects that are internal to an organization. This section

deals with projects a company (called the client) wants performed, but for which it

may hire external resources (called contractors) to execute significant parts or all of

the work. External projects can be viewed either from the perspective of the client company

that wants the project to be executed or from the perspective of the contractor

company that wants to perform the work. Client companies may first put prospective

external projects through a selection and prioritization process as described above and,

if selected, then decide whether to perform the work internally (make) or hire the project

to be performed by others (buy). If the decision is to buy, then the client company needs

to plan and conduct the procurement.

Contractor companies need to identify potential project opportunities, determine

which they will pursue, submit proposals, and be prepared to either bid or negotiate to

secure the work. We consider the client company’s perspective in Chapter 12, Project

Supply Chain Management. We consider the contractor’s perspective next.

Identify Potential Project Opportunities

Contractors seeking external projects to perform should pursue this in a fashion similar to

that of any company considering internal projects, as described in the portfolio alignment

section on identifying potential projects earlier in this chapter. Additionally, since they need

to look externally, contractor companies should have representatives at trade shows, professional

conferences, and anywhere information on the intentions of potential customers and

competitors may surface. Contractor companies should also actively practice customer relationship

management by establishing and nurturing personal contacts at various levels and

functions. Contractor companies can also practice customer relationship management by

linking information systems to the extent practical so as to identify any useful information

concerning potential future projects and improve management of current projects.

Determine Which Opportunities to Pursue

Just as all companies should decide which internal

projects to select, as previously described in the methods

for selecting projects, most contractor companies

are best served by targeting the projects they wish to

pursue. Some companies have a policy that they will

bid on every potential project, knowing that if they do

not bid, they will not be awarded the project. More

companies find that if they target their opportunities,

their “hit rate” or probability of securing the work on

any given proposal increases. It takes time and resources

to put together a good proposal, so it makes

sense to increase the acceptance rate by developing a

bid/no-bid decision strategy.

Each company has strengths and weaknesses compared

to its competitors. Hence, a quick SWOT analysis

could be used to decide whether to pursue a

potential project, just as a more involved version of SWOT analysis was described earlier

and depicted in Exhibit 2.2. Decision makers can also ask how well a potential project will

help achieve their objectives. If they determine a project will help achieve their objectives,

the next considerations are the cost to pursue the work and the probability of successfully Eric Audras/Jupiter Images

Many companies find that

targeting their opportunities

is a better use of

their time and resources

than bidding on every

potential project.

42 Part 1 Organizing Projects

securing the project given the likely competition. A company frequently considers risks

both of pursuing and not pursuing a potential project. Finally, does the company have the

capability to perform the work if it is awarded?

Prepare and Submit a Project Proposal

When a firm prepares to submit a proposal, it is really conducting a small project with

the primary deliverable of the project being an accurate and complete proposal. The contractor

should understand the source selection criteria the client will use to decide to

whom they will award the project. While criteria will vary extensively from one project

to another, generally four main areas will be considered—technical, management, financial,

and operational factors. In other words, a client will likely want to be convinced that

the potential contractor is technically, managerially, financially, and operationally competent.

Successful project managers try very hard to convince potential clients that they

are capable on all three dimensions. A short list of these factors is shown in Exhibit 2.14.

Negotiate to Secure the Project

Once all proposals have been delivered and evaluated, the client company may elect to

either award the project or enter into negotiations with one or more potential contractors.

On more routine projects, the contract may be awarded at this point. Further clarifications

and negotiations may follow for complex projects.

A client company and a contractor company may negotiate the amount of money to

be paid for a project. They may also negotiate the contractual terms, schedule, specific

personnel to be assigned to work on the contract, quality standards, reporting mechanisms,

and various other items. A project manager may need to make arrangements with

potential suppliers to secure the products and services needed to perform the project. All

of these considerations will be covered in subsequent chapters.

Successful project managers understand that they need to prepare well for negotiations.

This starts with a clear understanding of what is most important to their management.

Often, it includes fact-finding with the client company to understand its needs and

abilities. Armed with understanding of both perspectives, a project manager attempts to

find a solution that allows the organization to secure the project work with enough profit

potential and with the start of a good working relationship with the client. In the end,

the client company will select the contractor(s) and award the contract(s).


Project selection does not occur in isolation. Ideally, it

begins with the organization’s strategic planning. This

planning begins with a strategic analysis of the organization’s

internal strengths and weaknesses as well as the

external threats and opportunities it faces. The organization

should then develop its guiding principles such as




Technical experience Management experience Financial capacity Production capacity

Needs understanding Project charter Life cycle cost Business size and type

Technical approach Planning and scheduling Cost basis and assumptions Past performance

Risk mitigation Project control Warranties References

Chapter 2 Project Selection and Prioritization 43

mission and vision statements. Most companies will

have an annual planning session in which strategic objectives

are developed. Larger organizations will continue

this effort with one or more levels of planning in which

the overall objectives are flowed down to determine objectives

that are appropriate for each organizational level.

Once the strategic planning is accomplished, the organization’s

leadership team engages in portfolio alignment.

The first part of the organizational alignment is an

open and honest assessment of the organization’s ability

to perform projects. The decision makers need to understand

how many resources are available, the organization’s

overall capabilities, and the capabilities of the

individuals who will be assigned to projects. An ongoing

portfolio alignment activity is for everyone in the firm to

identify possible opportunities that they feel might help

the organization achieve its goals. Each potential project

should be described at least by stating in a sentence or

two what work is involved and how it would help the

organization achieve one or more of its goals.

Once potential projects are identified and briefly described

with statements of work and business cases,

they should be put through a process to determine

which will be selected and what their relative priorities

are. Both financial and scoring models are frequently

used to evaluate potential projects. Net present value is

the preferred financial method, although others are

sometimes used. Financial analysis tells the leadership

team how much each potential project is worth from a

benefits-versus-cost comparison, but does not tell how

each potential project may help to achieve the organization’s

goals. Scoring models can incorporate various

goals and should also be used. Once a project list is

selected, the projects need to be prioritized so some

can start right away and others can start later.

Contractor companies need to be constantly on the

lookout for potential project opportunities. Once potential

projects are identified, companies need to decide

which ones they pursue. Just as for internal projects,

some external projects will be better at helping an organization

reach its goals because they are a better fit.

The contractor needs to prepare and submit proposals

for desired projects and be prepared to follow up and

often negotiate in order to secure them.

Key Terms from the PMBOK ® Guide

statement of work, 35 business case, 35

Chapter Review Questions

1. List and describe each step in the strategic planning


2. Why are multiple-criteria project selection models


3. What happens to a project proposal that does not

meet a “must” objective in a project selection


4. What does the strategic analysis acronym SWOT

stand for?

5. Which parts of SWOT are internal? Which parts

are external?

6. What are some examples of guiding principles an

organization’s leaders might develop after they

have completed strategic analysis?

7. In what tense should a vision be written?

8. Name at least four things a mission statement

should include.

9. Why should a mission statement be neither too

specific nor not specific enough?

10. In addition to short- and long-term results, what

should strategic objectives include?

11. What does the acronym SMART mean with regard

to goals?

12. What is the primary method of implementing

organizational objectives?

13. What is the first step in avoiding common reasons

for project failure?

14. Who should be involved in the second part of

aligning projects with the firm’s goals, which is

identifying potential projects?

15. How many potential projects should be identified

in comparison to how many the organization

plans to actually implement? Why?

16. What is the most common financial analysis

technique used in project selection? Why?

17. Which type of financial model would you normally

use in project selection? Why?

44 Part 1 Organizing Projects

Discussion Questions

1. Describe how to prioritize projects to ensure top

management involvement.

2. Describe all of the issues management must

consider when determining priorities of projects.

3. Tell why gaining top management support is

vital to project success.

4. List and describe the steps in strategic direction


5. Describe how to conduct each portion of a

SWOT analysis.

6. Describe what knowledge is gained from each

portion of a SWOT analysis and how it helps

project managers.

7. Describe the interaction between vision and

mission statements.

8. List and describe the steps in prioritizing projects

with a scoring model. Why are they performed in

this order?

9. Describe advantages and disadvantages of financial

and scoring models in project selection.

10. Describe three different ways decision makers

might select projects while considering both

financial and nonfinancial factors.

PMBOK ® Guide Questions

1. Work that is grouped together to facilitate effective

management of that work to meet strategic

business objectives is called a:

a. portfolio

b. program

c. project

d. subproject

2. Projects may be undertaken as a result of any of

the following strategic reasons except:

a. business need

b. customer request

c. executive preference

d. technological advance

3. Program management includes all of the following


a. aligning organizational and strategic direction

b. managing shared client relationships

c. resolving issues and change management

d. resolving resource constraints

4. Typical source selection criteria for projects include

all of the following capabilities except:

a. financial

b. management

c. marketing

d. technical

5. A narrative description of products or services to

be provided by the project is a:

a. business case

b. project proposal

c. project statement of work

d. subproject


1. Complete the following scoring model. Show all

your work. Tell which project you would pick first,

second, third, and last. How confident are you with

each choice? If you lack confidence regarding any of

your choices, what would you prefer to do about it? Project A

Project B

Project C

Project D


Total Score

Criteria 1 Criteria 2 Criteria 3


Criteria &

Weight 10 6 4













Chapter 2 Project Selection and Prioritization 45

2. Complete the following scoring model. Show all

your work. Tell which project you would pick first,

second, third, and last. How confident are you with

each choice? If you lack confidence regarding any of

your choices, what would you prefer to do about it?

Project A

Project B

Project C

Project D


Total Score

Criteria 1 Criteria 2 Criteria 3


Criteria &

Weight 10 7 3













3. Pretend you are on the leadership team for a

pharmaceutical company that is in a difficult financial

situation due to patents that have died on two

of your most profitable drugs. Brainstorm a list of

criteria by which you would select and prioritize

projects. Weight the criteria.

4. Pretend you are on the leadership team of a

manufacturing company that is currently challenged

by low-cost competition. Brainstorm a list

of criteria by which you would select and prioritize

projects. Weight the criteria.

Example Project

Your instructor will probably bring example projects to

class and facilitate the assignment of students to the

various project teams. Therefore, you will probably

not be involved in the project selection. However, one

of the first things you should do when assigned to a

project is to learn about the company or other organization

that wants the project to be completed. Why did

they select this project? Is it a “must do” project or did

it get picked over other competing projects? By understanding

what makes the project so important, you will

make better decisions and will be more motivated

through the term. If your project is a “must do” project,

explain why. If it is not a “must do” project, explain

how it was selected. Explain where it fits in priority

with other work of the organization.


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(PMBOK® Guide) 4th ed. (Newtown Square, PA:

Project Management Institute, 2008).

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Management Skills: A Manager’s Toolkit (Mason,

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Value at Risk Based Approach to Portfolio Balancing,”

International Journal of Project Management

25 (2007): 569–578.

Chinta, Ravi and Timothy J. Kloppenborg, “Projects

and Processes for Sustainable Organizational

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Research Conference 2006 (Newtown Square, PA:

Project Management Institute, 2006).

46 Part 1 Organizing Projects

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Scoreboard,” Technology Management

(January–February 2010): 11–13.

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(10) (October 2005): 46–52.

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Quality and Performance Excellence, 8th ed. (Mason,

OH: South-Western Cengage Learning, 2011).

Fretty, Peter, “Find the Right Mix,” PMNetwork 19(9)

(September 2005): 26–32.

Kenny, John, “Effective Project Management for Strategic

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Context,” Project Management Journal 34 (1)

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PMNetwork 20 (3) (March 2006): 58–62.

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Knowledge Foundation, 2nd ed. (Newtown Square,

PA: Project Management Institute, 2008).

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Decisions,” Proceedings of PMI Research Conference

2006 (Newtown Square, PA: Project Management

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Laur, and Sara Schley, The Necessary Revolution:

How Individuals and Organizations Are Working

Together to Create a Sustainable World (New York:

Broadway Books, 2008).

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the Right Projects at the Right Time,” Bank Systems

& Technolgy 46 (4) (June–July 2009): 34.

Thamhain, Hans J., “Developing Winning Proposals,”

Field Guide to Project Management, 2nd ed., edited

by David I. Cleland (Hoboken, NJ: John Wiley &

Sons, Inc., 2004): 180–201.

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(Newtown Square, PA: Project Management

Institute, 2008).

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Management Skills: A Manager’s Toolkit

(Mason, OH: Thomson South-Western, 2005): A10.

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Chapter 2 Project Selection and Prioritization 47


Prioritizing Projects at D. D. Williamson

One of the most difficult, yet most important, lessons

we have learned at D. D. Williamson surrounds project

prioritization. We took three years and two iterations of

our prioritization process to finally settle on an approach

that dramatically increased our success rate on

critical projects (now called VIPs, or “Vision Impact


Knowing that one of the keys to project management

success is key management support, our first approach

at prioritization was a process where our entire senior

management team worked through a set of criteria and

resource estimations to select a maximum of two projects

per senior management sponsor—16 projects in total.

Additionally, we hired a continuous improvement

manager to serve as both our project office and a key

resource for project facilitation. This was a great move

forward (the year before we had been attempting to

monitor well over 60 continuous improvement projects

of varying importance). Our success rate improved to

over 60 percent of projects finishing close to the expected

dates, financial investment, and results.

What was the problem? The projects that were not

moving forward tended to be the most critical—the

heavy-investment “game changing” projects. A review

of our results the next year determined we left significant

money in opportunity “on the table” with projects

that were behind and over budget!

This diagnosis led us to seek an additional process

change. While the criteria rating was sound, the number

of projects for a company our size was still too

many to track robustly at a senior level and have resources

to push for completion. Hence, we elevated a

subset of projects to highest status—our “VIPs.” We

simplified the criteria ratings—rating projects on the

level of expected impact on corporate objectives, the

cross-functional nature of the team, and the perceived

likelihood that the project would encounter barriers

which required senior level support to overcome.

The results? Much better success rates on the big

projects, such as design and implementation of new

equipment and expansion plans into new markets.

But why?

The Global Operating Team (GOT) now has laser

focus on the five VIPs, reviewing the project plans

progress and next steps with our continuous improvement

manager in every weekly meeting. If a project is

going off plan, we see it quickly and can move to reallocate

resources, provide negotiation help, or change

priorities within and outside the organization to manage

it back on track. Certainly, the unanticipated barriers

still occur, but we can put the strength of the

entire team toward removing them as soon as they


A couple of fun side benefits—it is now a development

opportunity for project managers to take on a VIP.

With only four to six projects on the docket, they come

with tremendous senior management interaction and

focus. Additionally, we have moved our prioritization

process into our functional groups, using matrices

with criteria and resource estimations to prioritize customer

and R&D projects with our sales, marketing, and

science and innovation teams, as well as IT projects

throughout the company. The prioritization process

has become a foundation of our cross-functional


Following are excerpts from the spreadsheet

D. D. Williamson used to select and prioritize our VIP

projects last year. Exhibit 2.15 shows the five criteria

used to prioritize the projects. Exhibit 2.16 shows how

associate time when assigned to a project is not available

for other projects. Projects can also be limited by

the amount of funds. Finally, Exhibit 2.17 defines

terms used in project selection.

48 Part 1 Organizing Projects





Qtr to





Project list —



and innovation

Level of





of $XXX,


Weight Weighted






in natural

colors of

$X, XXX,


Weight Weighted





return on



of XX%

Weight Weighted




of project—



Weight Weighted



Risk of


barriers to


Weight Weighted





1 Powder




8 5 40 1 5 5 9 4 36 5 3 15 5 3 15 111

1 Design and

install “new


equipment” in



8 5 40 1 5 5 10 4 40 9 3 27 9 3 27 139

2 Implement expansion


for new products


9 5 45 10 5 50 8 4 32 8 3 24 8 3 24 175

2 Install “new



4 5 20 3 5 15 10 4 40 10 3 30 10 3 30 135











Associate “improvement” hrs for quarter: 120 120 120 120 120 120 120 120

Total associate hrs committed: 80 120 60 180 0 60 40 60

Total hours

exceeding available quarter

−40 0 −60 60 −120 −60 −80 −60

Powder packaging equipment installation 60 60

Design and install “new processing equipment”

in China operation

60 40

Implement expansion plans for new products


80 120 60 60

Install “new environmental scrubber” 60





Project Ownership Defines the functional area with primary responsibility for the project

Global vs. Local Global projects will be implemented or impact on more than one location in the year defined;

otherwise projects are defined as local

Prioritization The five weighted criteria on worksheet one were used to put projects in rank order—used to

assign resources and identify the cut off

CI Project An improvement effort which is not part of an associate’s daily work requirements

Team Charter The plan for completing CI projects, often in seven-step format for problem resolution, though

formats vary according to project type and complexity. Includes the plan for communicating

progress and results

Project Roles The defined roles on an improvement team—not all teams will have all roles, but each project

will have at least a project manager and sponsor

Project Manager (PM) The owner of a project—will be expected to charter the team, ensure the forward movement of the

project, and report on progress, completion of the project, and closure/celebration of successes and

learnings. Also responsible for the communication plan within the charter. Must be a leadership

program graduate, and typically a functional manager, either global or local

Sponsor (S) Typically a senior manager/GOT member—responsible for ensuring assignment of appropriate

resources, clearing any barriers, and otherwise championing the project

Team Member (TM) An associate who has a significant contribution to make to the improvement effort, often a

representative of an involved function. Attends all team meetings and shares responsibility for

completion of the project

Subject Matter Expert


An associate with needed knowledge for project outcome—may not be significantly affected by

changes. Attends only when knowledge is required, but commits to sharing knowledge when it is


Level of Difficulty The estimated human resource effort that will be required to complete a project (estimated on a

per quarter basis)

Level 1 Low investment of hours required (may require capital); solution is known and implementation of

solution is predictable; likely only 2–3 people involved

Level 1 projects—estimated hours for resource allocation: PM: 10 hours; S: 2 hours; SME:

5 hours

Level 2 Medium investment of hours required; may require upfront measurement and multiple solutions,

but solutions and implementation are still expected to be simple. Probably requires 3–5 team


Level 2 projects—estimated hours for resource allocation: PM: 60 hours; S: 15 hours; TM: 30

hours; SME 15 hours

Level 3 High investment of hours required; trying to solve complex and/or ongoing problems. Likely to involve

a behavior change in others—solutions or implementation outcomes may be unknown or less

simple. Likely a team of 4–8 people, perhaps cross-functional/cross location

Level 3 projects—estimated hours for resource allocation: PM: 120 hours; S: 30 hours; TM: 60

hours; SME: 30 hours

Source: Elaine Gravatte, Chief People Officer and North American President, D. D. Williamson

Chapter 2 Project Selection and Prioritization 51

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