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
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
• 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
how to select and
prioritize projects using a
• 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
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
Charter Kick-off Project
Planning Executing Closing &
• Portfolio management
• Program management
• Projects and strategic
• Source selection criteria
• Project statement
• 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.
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.)
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,
STRATEGIC PLANNING AND PORTFOLIO ALIGNMENT
Vision & Mission
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.
SWOT ANALYSIS FOR THE BUILT GREEN HOME AT SUNCADIA
Green building has a buzz
Seattle has a strong green building community
Strong community support
Growth in green building projects that
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
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
VISION AND MISSION
Cincinnati Children’s Hospital Medical Center will be the leader
in improving child health.
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
today and in the future.
Source: Cincinnati Children’s Hospital Medical Center, http://www.cincinnatichildrens.org/about/corporate/mission.
htm, accessed June 28, 2007.
30 Part 1 Organizing Projects
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.
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
MIDLAND INSURANCE COMPANY STRATEGIC OBJECTIVES
“COMPETE ON VALUE,
NOT ON PRICE”
“TARGET NICHES WHERE
COMPETITION IS FRAGMENTED
“ATTRACT, RETAIN, ALIGN, INVEST”
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
PORTFOLIO, PROGRAM, PROJECT, AND SUBPROJECT RELATIONSHIPS
Program Alpha Program Beta
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
PORTFOLIO OF PROJECTS AND OPERATIONAL WORK PROCESSES
Kn to $S Little Kn Reliable Kn
M&A Due Diligence
Incremental Process Improvements
Sales and Marketing
New Projects Portfolio
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
• 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
• 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
PROJECT SELECTION, PRIORITIZATION, AND INITIATION
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
FINANCIAL MODELS FOR PROJECT SELECTION
OF RETURN (IRR)
Calculation PV revenue _ PV
Percentage return on
Annual cash flows
Neutral Result NPV ¼ $0 Ratio ¼ 1.0 IRR ¼ Cost of capital Payback period ¼
If used to screen
projects or to select
NPV > Acceptable
Ratio > Acceptable
IRR > Acceptable
Payback period <
If used to compare
Higher NPV better Higher ratio better Higher IRR better Shorter payback
Chapter 2 Project Selection and Prioritization 37
ADVANTAGES AND DISADVANTAGES OF EACH METHOD Financial models are
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
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
EXAMPLES OF PROJECT SELECTION CRITERIA
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 SELECTION AND PRIORITIZATION MATRIX
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.
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
COMPLETED PROJECT SELECTION AND PRIORITIZATION MATRIX
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.
REVISED PROJECT SELECTION AND PRIORITIZATION MATRIX
10 8 5 9
50 24 20 45
40 24 25 45
10 40 15 27
20 32 5 18
Source: Chris Bridges.
ALTERNATIVE BREAKS PROJECT SELECTION AND PRIORITIZATION MATRIX
OPPORTUNITY ISSUE ITSELF
TO WORK WITH COST
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
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
TYPICAL SOURCE SELECTION CRITERIA
TECHNICAL MANAGEMENT FINANCIAL OPERATIONAL
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
5. Which parts of SWOT are internal? Which parts
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
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
12. What is the primary method of implementing
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
1. Describe how to prioritize projects to ensure top
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
6. Describe what knowledge is gained from each
portion of a SWOT analysis and how it helps
7. Describe the interaction between vision and
8. List and describe the steps in prioritizing projects
with a scoring model. Why are they performed in
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:
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:
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
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
Criteria 1 Criteria 2 Criteria 3
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?
Criteria 1 Criteria 2 Criteria 3
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.
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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2 (Spring 2010): 22–28.
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to Profitable Innovation,” Proceedings of PMl
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46 Part 1 Organizing Projects
Daft, Richard L., Management, 9th ed. (Mason, OH:
South-Western Cengage Learning, 2010).
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Scoreboard,” Technology Management
(January–February 2010): 11–13.
Essex, David E., “In Search of ROI,” PMNetwork 19
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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.
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Innovation and Change in an Organizational
Context,” Project Management Journal 34 (1)
(March 2003): 43–53.
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Approach to Derive Projects from the Organizational
Vision,” Proceedings of PMI Research Conference
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Management Institute, 2006).
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PMNetwork 20 (3) (March 2006): 58–62.
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Management with Business Strategy,” Project Management
Journal 37 (3) (August 2006): 98–110.
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Business Models for Making Project Go/No Go
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
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Broadway Books, 2008).
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the Right Projects at the Right Time,” Bank Systems
& Technolgy 46 (4) (June–July 2009): 34.
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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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accessed February 2, 2010.
1. Aldag, Ramon J. and Loren W. Kuzuhara, Mastering
Management Skills: A Manager’s Toolkit
(Mason, OH: Thomson South-Western, 2005): A10.
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3. Lussier, Robert N. and Christopher F. Achua,
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12. PMBOK® Guide 75.
Chapter 2 Project Selection and Prioritization 47
PROJECT MANAGEMENT I N ACTION
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.
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
PROJECT PRIORITIZATION FOR D. D. WILLIAMSON
PROJECTS (REDUCED FOR EXAMPLE)
Project list —
8 5 40 1 5 5 9 4 36 5 3 15 5 3 15 111
1 Design and
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 TIME ASSIGNED TO PROJECTS
TED MARGARET ELAINE BRIAN ANN GRAHAM EDIE CAMPBELL
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
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
Implement expansion plans for new products
80 120 60 60
Install “new environmental scrubber” 60
TERMS USED IN PROJECT SELECTION
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:
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