1185880 - McGraw Hill Education ©PProjectrojectnetnetwor

1185880 - McGraw Hill Education ©
PProjectroject
netnetworksworks
66
ManagingManaging
riskrisk
77
MonitoringMonitoring
progrprogressess
1313
TTeamseams
1111
OutsourcingOutsourcing
1212
LeadershipLeadership
1010
StrategyStrategy
22
IntroductionIntroduction
11
OrgOrganizationanization

33
ScheduleSchedule
resourresources/costsces/costs
88
Inte
rna
tion
al
Inte
rna
tion
al
pro
ject
s
pro
ject
s
1515
1818
OverOvers
ightsight
Agile

Agile PMPM
CarCareer eer pathspaths
1717
1616
PProjectroject
closureclosure
1414
EstimatEstimatee
55
ReducingReducing
project project durationduration
99
DefineDefine
projectproject
44
C H A P T E R C H A P T E R T W OT W O
2424
Organization Organization Strategy Strategy and and Project
Project SelectionSelection
The The Strategic Strategic Management Management Process:
Process: An An OverviewOverview
The The Need Need for for a a Project Project Portfolio
Portfolio Management Management SystemSystem

A A Portfolio Portfolio Manage ment Management
SystemSystem
Selection Selection CriteriaCriteria
Applying Applying a a Selection Selection ModelModel
Managing Managing the the Portfolio Portfolio SystemSystem
SummarySummary
Appendix Appendix 2.1: 2.1: Request Request for for Proposal
Proposal (RFP)(RFP)
Organization Organization Strategy Strategy
and and Project Project SelectionSelection
StrStrategy ategy is is implemented implemented thrthrough
ough projectsprojects. . Every Every prproject oject should
should have have a a
cclear lear link link to to the the orgorganizationanization’s ’s
strstraategytegy..
StraStrategy tegy is is fundamentally fundamentally deciding
deciding hohow w the the organizaorganization tion will will
competecompete. . OrganizaOrganizations tions
use use prprojects ojects to to conconvert vert strastrategy tegy
into into new new prproductsoducts, , servicesservices, , and
and processes processes needed needed ffor or
successsuccess. . FFor or exampleexample, , Intel’Intel’s s
major major strategy strategy is is one one ofof differ

differentiation. entiation. Its Its prprojects ojects
tartarget get innovinnovation ation and and time time to to
marmarket. ket. CurrCurrentlyently, , Intel Intel is is directing
directing its its strastrategy tegy totoward ward
specialty specialty chips chips ffor or prproducts oducts other
other than than computerscomputers, , such such as as
autosautos, , securitysecurity, , cell cell phonesphones,,
air air contrcontrolsols. . Another Another goal goal is is to to
reduce reduce prproject oject cycle cycle timestimes. . Intel,
Intel, NEC, NEC, General General
Electric, Electric, and and AAT&T T&T hahave ve reduced
reduced their their cycycle cle times times by by 20–50 20–50
percent. percent. PrProjects ojects and and
prproject oject management management plaplay y the the key
key rrole ole in in supporting supporting strastrategic tegic
goalsgoals. . It It is is vital vital for for
prproject oject managers managers to to think think and and
act act strastrategicallytegically..
Aligning Aligning prprojects ojects with with the the
strategic strategic goals goals ofof the the organizaorganization
tion is is crucial crucial for for prproj-oj-
ect ect successsuccess. . TTodaoday’y’s s economic economic
climate climate is is unprecedented unprecedented bby y rapid
rapid changes changes in in tech-tech-
nologynology, , global global competition, competition, and and
financial financial uncertaintyuncertainty. . These These
conditions conditions make make
strastrategy/project tegy/project alignment alignment eeven ven
more more essential essential ffor or successsuccess. . Ensuring
Ensuring a a strong strong link link
between between the the strastrategic tegic plan plan and and
projects projects is is a a difdifficult ficult task task thathat t
demands demands constant constant
aattention ttention from from top top and and midmiddle dle
management.management.
The The larger larger and and mormore e diverse diverse an

an ororganization, ganization, the the mormore e difficult
difficult it it is is to to crcreate eate
and and maintain maintain this this strstrong ong link. link.
Companies Companies todatoday y are are under under
enorenormous mous pressure pressure to to
manage manage a a prprocess ocess that that clearlclearly y
aligns aligns prprojects ojects to to organizaorganization tion
strastrategytegy. . Ample Ample evi-evi-
dence dence still still suggests suggests thathat t many many
ororganizations ganizations hahave ve not not devdeveloped
eloped a a process process thathat t
clearlclearly y aligns aligns project project selection selection
to to the the strastrategic tegic plan. plan. The The result result
is is poor poor utilization utilization
ofof the the organizaorganization’tion’s s resources—
peopleresources—people, , moneymoney, , equipment,
equipment, and and core core competen-competen-
ciescies. . ConConverselyversely, , organizaorganizations tions
that that hahave ve a a cohercoherent ent link link ofof pr
projects ojects to to strategystrategy
hahave ve more more cooperacooperation tion acracross oss the
the organizaorganization, tion, perfperfororm m better better on
on projectsprojects, , and and
hahave ve fewer fewer prprojectsojects..
HoHow w can can an an organizaorganization tion ensure
ensure this this link link and and alignment? alignment? The
The ansanswer wer requirrequires es
integraintegration tion ofof pr projects ojects with with the the
strastrategic tegic plan. plan. Integration Integration assumes
assumes the the eexistence xistence
ofof a a strategic strategic plan plan and and a a prprocess
ocess for for pprioritizing rioritizing prprojects ojects by by
their their contribution contribution to to
the the plan. plan. A A crucial crucial factor factor to to ensure

ensure the the success success ofof integra integrating ting the
the plan plan with with proj-proj-
ects ects lies lies in in the the creacreation tion ofof a a
prprocess ocess that that is is open open and and trtransparent
ansparent ffor or all all partici-partici-
pants pants to to rereviewview. . This This chapter chapter
prpresents esents an an ovoverview erview ofof the the
importance importance ofof stra strategic tegic
planning planning and and the the prprocess ocess ffor or
developing developing a a strastrategic tegic plan. plan.
TTypical ypical prproblems oblems en-en-
countered countered wwhen hen strategy strategy and and
prprojects ojects are are not not linklinked ed are are noted.
noted. A A generic generic method-method-
ology ology thathat t ensures ensures integraintegration tion by
by creacreating ting very very strstrong ong linkages linkages
ofof pr project oject selection selection
and and priority priority to to the the strastrategic tegic plan
plan is is then then discussed. discussed. The The intended
intended outcomes outcomes are are
clear clear ororganization ganization ffocusocus, , best best use
use ofof scarce scarce ororganization ganization rresources
esources (people(people, , equip-equip-
ment, ment, capital), capital), and and imprimprovoved ed
communicacommunication tion across across prprojects ojects
and and departmentsdepartments..
2525
26 26 Chapter Chapter 2 2 OrOrganization ganization
StrStrategy ategy and and Project Project SelectionSelection

WhWhy y Project Project ManagManagers ers Need Need to to
UnderUnderstand stand StrateStrategygy
PrProject oject management management historicallhistorically
y has has been been preoccupied preoccupied solely solely with
with the the planning planning
and and exexecution ecution ofof pr projectsojects. .
StraStrategy tegy was was considered considered to to be be
under under the the purviepurview w ofof se- se-
nior nior management. management. This This is is old-school
old-school thinking. thinking. NeNew-school w-school thinking
thinking recognizes recognizes
thathat t project project manamanagement gement is is at at the
the aapex pex ofof strategy strategy and and
operoperationsations. . Aaron Aaron Shenhar Shenhar
speaks speaks to to this this issue issue when when he he
stastatestes, , “. “. . . . . it it is is time time to to expand expand
the the traditional traditional rrole ole ofof
the the prproject oject manager manager frfrom om an an
operaoperational tional to to a a more more strastrategic tegic
perspectiveperspective. . In In the the
modern modern evevolving olving organizaorganization, tion,
project project manamanagers gers will will be be ffocused
ocused on on business business
aspectsaspects, , and and their their role role will will eexpand
xpand from from getting getting the the job job done done to to
achieachieving ving the the
business business rresults esults and and winning winning in in
the the markmarket et placeplace.”.” 11
There There arare e two two main main rreasons easons
whwhy y project project manamanagers gers need need to to
understand understand their their
ororganizationganization’’s s mission mission and and
strategystrategy. . The The first first rreason eason is is so so
they they can can make make aappropri-ppropri-
aate te decisions decisions and and adjustmentsadjustments. .

FFor or exampleexample, , hohow w a a project project
manamanager ger would would rre-e-
spond spond to to a a suggestion suggestion to to modify modify
the the design design ooff a a product product to to enhance
enhance perfperforormance mance
will will vary vary depending depending upon upon wwhether
hether his his compancompany y strives strives to to be be a a
prproduct oduct leader leader
thrthrough ough innovinnovation ation or or to to achieachieve
ve operaoperational tional exexcellence cellence through
through lolow w cost cost solu-solu-
tionstions. . SimilarlySimilarly, , how how a a prproject oject
manager manager wwould ould respond respond to to deladelays
ys mamay y vary vary depend-depend-
ing ing upon upon strastrategic tegic concernsconcerns. . A A
project project manamanager ger will will authorize authorize
ovovertime ertime ifif her her firfirm m
places places a a premium premium on on getting getting to to
the the marmarket ket first. first. Another Another prproject
oject manager manager willwill
accept accept the the deladelay y ifif speed speed is is not not
essential.essential.
The The second second reason reason prproject oject
managers managers need need to to understand understand their
their ororganizationganization’’s s
strastrategy tegy is is so so they they can can be be
effectieffective ve prproject oject advadvocatesocates. . Project
Project manamanagers gers hahave ve to to be be
aable ble to to demonstrademonstrate te to to senior senior
management management hohow w their their project project
contribcontributes utes to to their their
firm’firm’s s mission. mission. Protection Protection and and
contincontinued ued support support come come from from
being being aligned aligned with with
corporacorporate te objectivesobjectives. . Project Project

manamanagers gers also also need need to to be be aable ble to
to explain explain to to teamteam
members members and and other other stakstakeholders
eholders whwhy y certain certain prproject oject objectives
objectives and and priorities priorities are are
critical. critical. This This is is essential essential ffor or
getting getting buy-in buy-in on on contentious contentious
trade-oftrade-offf decisions decisions..
FFor or these these reasons reasons prproject oject managers
managers will will find find it it vvaluaaluable ble to to hahave
ve a a kkeen een under-under-
standing standing ofof strategic strategic manamanagement
gement and and project project selection selection
prprocessesocesses, , which which areare
discussed discussed next.next.
The The Strategic Strategic Management Management Process:
Process: An An OverviewOverview
StraStrategic tegic management management is is the the
prprocess ocess ofof assessing assessing “w“what hat we we
arare”e” and and deciding deciding and and imple-imple-
menting menting “wha“what t we we intend intend to to be be
and and hohow w we we are are going going to to get get
therethere.”.” Stra Strategy tegy describes describes
how how an an ororganizaganization tion intends intends to to
compete compete with with the the resources resources
aavailavailable ble in in the the existing existing and and
perceivperceived ed future future enenvironment.vironment.
TTwwo o major major dimensions dimensions ofof stra
strategic tegic management management are are rresponding
esponding to to changes changes in in the the
external external enenvironment vironment and and
allocaallocating ting scarce scarce rresources esources ofof the
the firm firm to to improimprove ve its its

competitivcompetitive e position. position. Constant Constant
scanning scanning ofof the the external external
enenvironment vironment ffor or changes changes
is is a a major major requirrequirement ement for for
survisurvival val in in a a ddynamic ynamic competitive
competitive enenvironment. vironment. TheThe
second second dimension dimension is is the the internal
internal responses responses to to nenew w action action
proprograms grams aimed aimed aat t en-en-
hancing hancing the the competitivcompetitive e position
position ofof the the firfirm. m. The The nanature ture ofof
the the responresponses ses depends depends
on on the the type type ofof business business, ,
envirenvironment onment volavolatilitytility, , competition,
competition, and and the the organiza-organiza-
tional tional cultureculture..
StraStrategic tegic management management prprovides
ovides the the theme theme and and ffocus ocus ofof the the
future future dirdirection ection
ofof the the organizaorganization. tion. It It supports supports
consistency consistency ofof action action aat t every every
levlevel el ofof the the
1 1 ShenharShenhar, , A., A., and and Dov Dov Dvie, Dvie, , ,
Harvard Harvard Business Business School, School, 2007, 2007,
p. p. 5.5.Reinventing Reinventing Project Project
ManagementManagement
Chapter Chapter 2 2 OrgOrganization anization Strategy
Strategy and and PrProject oject SelectionSelection 2727

IBM’IBM’s s investment investment in in artificial artificial
intelligence intelligence paid paid
off. off. In In February February 2010, 2010, millions millions
of of people people were were
glued glued to to their their television television sets sets to to
watch watch IBM’IBM’s s
WWatson atson outclass outclass two two former former
champion champion con-con-
testants testants on on the the Jeopardy Jeopardy quiz quiz
showshow. . Watson Watson performed performed at at hu-hu-
man man expert expert levels levels in in terms terms of of
precision, precision, confidence, confidence, and and speed
speed
during during the the Jeopardy Jeopardy quiz quiz showshow..
Does Does WWatson atson represent represent a a new new
strategic strategic direction direction for for IBM? IBM?
Not Not reallyreally. . The The Watson Watson project project
is is simply simply a a manifestation manifestation of of the the
move move from from computer computer hardware hardware to
to a a service service strategy strategy over over a a
decade decade ago.ago.
WAWATSON TSON PROJECT PROJECT
DESCRIPTIONDESCRIPTION
Artificial Artificial intelligence intelligence has has advanced
advanced significantly significantly in in recent recent
years. years. WWatson atson goes goes beyond beyond
IBM’IBM’s s chess-playing chess-playing supercom-supercom-
puter puter of of the the late late 1990s. 1990s. Chess Chess is
is finite, finite, logical, logical, and and reduced reduced
easily easily to to mathematics. mathematics. WWatson’atson’s
s space space is is ill-defined ill-defined and and in-in-
volves volves dealing dealing with with abstraction abstraction
and and the the circumstantial circumstantial nature nature
of of language. language. Since Since WWatson’atson’s s

system system can can understand understand natural natural
language, language, it it can can extend extend the the way way
people people interact interact with with
computers.computers.
The The IBM IBM Watson Watson project project took took
three three intense intense years years of of re-re-
search search and and development development by by a a core
core team team of of about about 20. 20. Eight Eight uni-uni-
versity versity teams teams working working on on specific
specific challenge challenge areas areas augmented augmented
these these researchers.researchers.
WWatson atson depends depends on on over over 200 200
million million pages pages of of structured structured
and and unstructured unstructured data data and and a a program
program capable capable of of running running tril-tril-
lions lions of of operations operations per per second. second.
With With this this information information backup, backup, it
it
attacks attacks a a JeopardyJeopardy question question by by
parsing parsing the the question question into into small small
pieces. pieces. With With the the question question parsed,
parsed, the the program program then then searches searches
for for relevant relevant data. data. Using Using hundreds
hundreds of of decision decision rules, rules, the the
program program generates generates possible possible
answers. answers. These These answers answers are are
assigned assigned a a confidence confidence score score to to
decide decide if if Watson Watson should should risk risk
offering offering an an answer answer and and how how much
much to to bet.bet.
WHAWHAT’S T’S NEXT?NEXT?
Now Now that that the the hype hype is is overover, , IBM IBM
is is pursuing pursuing their their service service strat-strat-

egy egy and and the the knowledge knowledge gained gained
from from the the WWatson atson project project to to real real
business business applications. applications. WWatson’atson’s s
artificial artificial intelligence intelligence design design is is
flexible flexible and and suggests suggests a a wide wide
variety variety of of opportunities opportunities in in indus-
indus-
tries tries such such as as finance, finance, medicine, medicine,
law law enforcement, enforcement, defense. defense.
Further Further extensions extensions to to handheld handheld
mobile mobile applications applications that that tap tap
S N A P S H O T S N A P S H O T F R O M F R O M P R A
C T I C EP R A C T I C E
Does Does IBM’IBM’s s Watson’Watson’s s Jeopardy
Jeopardy Project Project
Represent Represent a a Change Change in in
Strategy?*Strategy?*
into into WWatson’atson’s s servers servers also also hold hold
great great potential. potential. IBM IBM identified identified
the the obvious obvious lowest lowest hanging hanging apples
apples on on the the tree tree as as providing providing
healthcare healthcare solutions solutions and and has has begun
begun design design of of such such a a program.program.
TTo o create create a a “doctor’“doctor’s s consultant”
consultant” program program would would likely likely
follow follow a a design design platform platform similar
similar to to Watson’Watson’s. s. For For example, example, it
it
would would be be able able to:to:
• • Data Data mine mine current current medical medical
documents documents to to build build a a knowl-knowl-
edge edge basebase

• • Integrate Integrate individual individual patient patient
informationinformation
• • Use Use system’system’s s complex complex analytics
analytics to to select select relevant relevant datadata
• • Use Use decision decision rules rules to to provide provide
physicians physicians with with diagnostic diagnostic
optionsoptions
• • Rank Rank options options with with confidence
confidence levels levels for for each each option.option.
Creating Creating a a doctor’doctor’s s consultant consultant
solution solution will will not not replace replace doc-doc-
tors. tors. Although Although the the system system holds holds
tremendous tremendous potential, potential, it it is is
manmade manmade and and depends depends on on the the
database, database, data data analytics, analytics, and and
decision decision rules rules to to select select options. options.
Given Given the the doctor’doctor’s s consultant consultant
input, input, a a trained trained doctor doctor makes makes the
the final final patient patient diagnosis diagnosis to to
supplement supplement physical physical examination
examination and and experience.experience.
The The Watson Watson project project provides provides
IBM IBM with with a a flexible flexible compo-compo-
nent nent to to continue continue their their decade-old decade-
old strategystrategy, , moving moving IBM IBM from from
computer computer hardware hardware to to service service
products.products.
*Ferrucci, *Ferrucci, et et al. al. “Building “Building Watson,”
Watson,” AI AI Magazine. Magazine. vol. vol. 31, 31, no. no. 3.
3. Fall Fall 2010.2010.

ororganization. ganization. It It encouraencourages ges
integraintegration tion because because effeffort ort and and
resources resources areare
committed committed to to comcommon mon goals goals and
and strastrategiestegies. . See See Snapshot Snapshot frfrom om
Practice: Practice: Does Does
IBM’IBM’s s WWaatson’tson’s s JJeopardeopardy y Project
Project RRepresent epresent a a Change Change in in
StraStrategy? tegy? It It is is a a con-con-
tintinuousuous, , iteraiterative tive prprocess ocess aimed aimed
aat t developing developing an an integraintegrated ted and and
coordinacoordinated ted
long-term long-term plan plan ofof action. action.
StraStrategic tegic management management positions positions
the the ororganization ganization toto
meet meet the the needs needs and and requirrequirements
ements ofof its its customers customers ffor or the the long
long terterm. m. With With thethe
© © Sean Sean Gallup/Getty Gallup/Getty ImagesImages
long-term long-term position position identified, identified,
objectives objectives are are set, set, and and strstrategies
ategies are are dedeveloped veloped to to
achievachieve e objectives objectives and and then then
translatranslated ted into into actions actions by by
implementing implementing prprojectsojects. .
StraStrategy tegy can can decide decide the the survival
survival ofof an an ororganization. ganization. Most Most

ororganizations ganizations arare e
successful successful in in stra strategies tegies ffor or
whawhat t course(s) course(s) they they should should
pursuepursue. . How-How-formulatingformulating
eveverer, , the the probproblem lem in in many many
ororganizations ganizations is is stra strategies—that tegies—
that isis, , implementingimplementing
making making them them happen. happen. IntegrIntegration
ation ofof strategy strategy fforormulamulation tion and and
implementation implementation
often often does does not not exist.exist.
The The components components ofof strategic strategic
manamanagement gement are are closelclosely y linked, linked,
and and all all arare e di-di-
rected rected totowarward d the the future future success
success ofof the the ororganization. ganization. StraStrategic
tegic management management re-re-
quires quires strstrong ong links links among among mission,
mission, goalsgoals, , objectivesobjectives, , strategystrategy, ,
and and implementation. implementation.
The The mission mission givgives es the the general general
purpose purpose ofof the the ororganization. ganization. Goals
Goals givgive e global global tar-tar-
gets gets within within the the mission. mission.
ObjectivObjectives es give give specific specific tartargets gets
to to goalsgoals. . Objectives Objectives gigive ve
rise rise to to fforormulamulation tion ofof stra strategies
tegies to to reach reach objectivesobjectives. . FinallyFinally, ,
strastrategies tegies require require ac-ac-
tions tions and and tasks tasks to to be be implemented.
implemented. In In most most cases cases the the actions
actions to to be be taktaken en represent represent
prprojectsojects. . Figure Figure 2.1 2.1 shows shows a a
schemaschematic tic ofof the the strategic strategic
management management prprocessocess and and

major major activities activities rrequired.equired.
PProjectsrojects
11
22
33
44
W
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a
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InternalInternal
envirenvironment—onment—
strengths strengths andand
weaknessesweaknesses
ReReview/review/revisevise
missionmission
ReReview/review/revisevise
missionmission
ExternalExternal
envirenvironment—onment—
opporopportutunitiesnities
and and threatsthreats

Set Set strategystrategy
and and objectivesobjectives
PPorortfoliotfolio
of of strategic strategic choiceschoices
StrategyStrategy
implementationimplementation
PProjectroject
selectionselection
FIGURE FIGURE 2.12.1
Strategic Strategic
Management Management
PrProcessocess
Four Four Activities Activities of of the the Strategic Strategic
Management Management ProcessProcess
The The typical typical sequence sequence ofof activities
activities ofof the the strastrategic tegic management
management prprocess ocess is is outlined outlined
here; here; a a description description ofof each each activity
activity then then ffolloollows:ws:
1. 1. RReview eview and and define define the the
ororganizaganizational tional mission.mission.
2. 2. Analyze Analyze and and fforormulamulate te
strastrategiestegies..

3. 3. Set Set objectives objectives to to achieachieve ve
strastrategytegy..
4. 4. Implement Implement strategies strategies thrthrough ough
projectsprojects..
RReview eview and and Define Define the the
OrgOrganizational anizational MissionMission
The The mission mission identifies identifies “wha“what t we
we want want to to becomebecome,,”” or or the the raison
raison d’êtred’être. . Mission Mission
stastatements tements identify identify the the scope scope ofof
the the organizaorganization tion in in terterms ms ofof its its
prproduct oduct or or ser-ser-
vicevice. . A A written written mission mission statement
statement prprovides ovides ffocus ocus for for decision
decision making making wwhen hen shared shared
by by ororganizaganizational tional managers managers and and
emploemployeesyees. . EveryEveryone one in in the the
ororganization ganization should should
be be kkeenly eenly aawarware e ofof the the
organizaorganization’tion’s s mission. mission. FFor or
exampleexample, , at at one one larlarge ge consult-consult-
ing ing firm, firm, partners partners who who fail fail to to
recite recite the the mission mission stastatement tement on on
demand demand are are requirrequired ed
to to buy buy lunch. lunch. The The mission mission
stastatement tement communicacommunicates tes and and
identifies identifies the the purpose purpose ofof
the the ororganization ganization to to all all
stakstakeholderseholders. . Mission Mission statements
statements can can be be used used ffor or evaluaevaluating ting
ororganization ganization perfperforormancemance..
TTraditional raditional components components ffound ound
in in mission mission statements statements arare e major major
products products and and

servicesservices, , target target customers customers and and
markmarketsets, , and and geogrageographical phical domain.
domain. In In addition, addition,
stastatements tements frequently frequently include include
ororganizaganizational tional philosophphilosophyy, , key key
technolotechnologiesgies, , public public
imageimage, , and and contribution contribution to to
societysociety. . Including Including such such factors factors
in in mission mission statements statements
relarelates tes directldirectly y to to business business
successsuccess..
Mission Mission stastatements tements change change
infrequentlyinfrequently. . HoHowevweverer, , when when the
the nanature ture ofof the the busi-busi-
ness ness changes changes or or shiftsshifts, , revised revised
mission mission and and strastrategy tegy stastatements tements
may may be be rrequired. equired.
See See Snapshot Snapshot frfroom m Practice: Practice:
HP’HP’s s Strategy Strategy RRevision evision as as an an
eexample xample ofof a a mission mission
and and strastrategy tegy revision.revision.
More More specific specific mission mission stastatements
tements tend tend to to give give better better rresults esults
because because ofof a a
tighter tighter ffocusocus. . Mission Mission statements
statements decrdecrease ease the the chance chance ofof false
false directions directions bby y
stakstakeholderseholders. . FFor or exampleexample, , compare
compare the the phrasing phrasing ofof the the follofollowing
wing missionmission
stastatements:tements:
PrProvide ovide hospital hospital design design
servicesservices..
PrProvide ovide dadata ta mining mining and and analysis

analysis servicesservices..
PrProvide ovide infinforormation mation technolotechnology gy
servicesservices..
Increase Increase sharshareholder eholder valuevalue..
PrProvide ovide high-vhigh-value alue prproducts oducts to to
our our customercustomer..
ClearlClearlyy, , the the first first twtwo o statements
statements lealeave ve less less chance chance ffor or
misinterpretamisinterpretation tion than than the the
othersothers. . A A rule-of-thumb rule-of-thumb test test ffor or
a a mission mission statement statement isis, , ifif the the
stastatement tement can can be be
ananybody’ybody’s s mission mission statement, statement, it it
will will not not prproovide vide the the guidance guidance and
and focus focus intended. intended.
The The mission mission sets sets the the parameters parameters
ffor or devdeveloping eloping objectivesobjectives..
Analyze Analyze and and FFormulate ormulate
StrateStrategiesgies
FForormulamulating ting strastrategy tegy answanswers ers the
the question question ofof wwhat hat needs needs to to be be
done done to to reach reach ob-ob-
jectivjectiveses. . StraStrategy tegy fforormulamulatio n tion
includes includes deterdetermining mining and and evevaluating
aluating alternaalternativestives
thathat t support support the the organizaorganizationtion’’s s
objectives objectives and and selecting selecting the the best
best alternaalternativtivee. . The The
first first step step is is a a realistic realistic eevaluavaluation
tion ofof the the past past and and current current position
position ofof the the enterpriseenterprise. .

August August 18, 18, 2011, 2011, Hewlett Hewlett Packard
Packard announced announced
a a dramatic dramatic change change in in strategystrategy. .
Leo Leo ApothekerApotheker, ,
CEO CEO of of the the world’world’s s largest largest seller
seller of of personal personal
computers, computers, decided decided to to exit exit the the
low low margin margin PC PC
unit. unit. He He wanted wanted to to redirect redirect HP HP to
to business business software, software, network-network-
ing, ing, and and storage, storage, which which carry carry
higher higher margins. margins. UnfortunatelyUnfortunately, ,
Apotheker Apotheker failed failed to to communicate
communicate the the strategic strategic change change effec-
effec-
tivelytively, , lost lost credibility, credibility, and and was was
dismissed. dismissed. He He was was replaced replaced by by
Meg Meg Whitman, Whitman, while while controversy
controversy over over the the company’company’s s haphaz-
haphaz-
ard ard direction direction continued.continued.
THE THE PC PC MARKETMARKET
FundamentallyFundamentally, , the the PC PC has has become
become a a commodity. commodity. Although Although the the
HP HP personal personal computer computer unit unit
represents represents nearly nearly a a thirdthird of of total
total
revenue revenue and and about about 19 19 percent percent of
of HP’HP’s s profit, profit, growth growth and and profits

profits
are are slowing. slowing. Increased Increased competition
competition from from Asia, Asia, for for example, example,
Lenovo, Lenovo, will will continue continue to to erode erode
margins. margins. More More importantlyimportantly, , in-in-
creasing creasing use use of of smartphones smartphones and
and tablets tablets is is already already cannibaliz-cannibaliz-
ing ing the the PC PC market.market.
FUTURE FUTURE MARKETSMARKETS
In In HP’HP’s s words, words, their their new new
corporatewide corporatewide mission mission is is to to provide
provide
seamless, seamless, secure, secure, context-aware context-aware
experiences experiences for for a a con-con-
nected nected world.world.* * Business Business software,
software, networking, networking, and and storage storage
can can be be nicely nicely connected connected for for a a
grand grand corporate corporate strategy strategy to to
meet meet the the new new mission.mission.
IBM, IBM, Google, Google, Oracle, Oracle, and and
Microsoft Microsoft already already dominate dominate the the
software software industryindustry. . They They and and others
others are are all all moving moving to to collect collect
and and use use unstructured unstructured data data to to
enhance enhance decision decision making making and/or
and/or
client client requests requests across across numerous numerous
industries. industries. All All are are developing developing
better better search search engines engines to to sort sort
through through any any manner manner of of data data for for
information information relevant relevant to to the the search.
search. These These dominant dominant players players
leave leave HP HP in in a a catch-up catch-up mode.mode.
HP’HP’s s plan plan to to compete compete requires requires

quick quick action. action. Executing Executing the the
software software strategy strategy will will require require
purchasing purchasing smaller smaller firms firms or or
S N A P S H O T S N A P S H O T F R O M F R O M P R
A C T I C EP R A C T I C E HP’HP’s s Strategy Strategy
Revision*Revision*
developing developing collaborative collaborative
relationships relationships to to acquire acquire specific
specific
expertise. expertise. HP HP has has made made two two
purchases purchases to to buttress buttress the the new new
strategystrategy. . Autonomy Autonomy Corporation,
Corporation, UK, UK, will will concentrate concentrate on on
min-min-
ing ing and and searching searching large large structured
structured and and unstructured unstructured data. data.
Their Their purchase purchase of of VVertica ertica provides
provides an an analytics analytics platform platform for for
large large structured structured and and unstructured
unstructured data. data. WWe e can can expect expect to to see
see
more more purchases purchases that that connect connect
software, software, storage, storage, and and network-network-
ing, ing, which which will will complement complement
HP’HP’s s current current expertise expertise in in the the
server server business.business.
EXECUTING EXECUTING STRASTRATEGYTEGY
HP HP faces faces risks. risks. HP HP has has bet bet the the
farm farm on on this this revised revised strategy strategy
that that looks looks similar similar to to what what IBM IBM
started started over over a a decade decade ago. ago. IBM IBM
has has spent spent billions billions and and ten ten years years

of of development development to to perfect perfect
their their systems systems (see (see previous previous
WWatson atson Snapshot). Snapshot). HP HP is is in in a a
“follower” “follower” position. position. This This means
means gaining gaining market market share share from from
tough tough rivals rivals such such as as IBM, IBM, Apple,
Apple, Google, Google, Oracle, Oracle, and and Cisco. Cisco.
Can Can HP HP afford afford to to gogo face-to-face face-to-
face with with others others in in stronger stronger cash cash
positions? positions? Can Can HP HP sell sell off off its its PC
PC division division at at a a reasonable reasonable price?pr ice?
HP HP must must move move quickly quickly to to catch
catch up. up. Executing Executing the the new new
mission mission statement statement presents presents numerous
numerous leadership leadership chal-chal-
lenges. lenges. The The changes changes in in HP HP strategies
strategies over over the the last last 15 15 years years
have have caused caused confusion confusion and and a a loss
loss of of employee employee loyaltyloyalty. . Addi-Addi-
tional tional changes changes in in organizational organizational
culture, culture, along along with with many many
new new mission mission critical critical projects, projects, will
will place place further further stress stress on on the the
organization. organization. HP HP must must be be vigilant
vigilant in in selecting, selecting, prioritizing, prioritizing,
and and balancing balancing organizational organizational risk
risk for for all all projects. projects. HP HP needs needs
to to communicate communicate a a coherent coherent strategy
strategy that that can can be be executed executed
consistently consistently over over time.time.
Although Although there there are are outsiders outsiders
who who have have praised praised or or criti-criti-
cized cized the the new new strategystrategy, , we we must must
wait wait and and see see how how the the details details

unfold. unfold. HP’HP’s s strategic strategic moves moves will
will make make interesting interesting case case stud-stud-
ies ies for for years years to to come.come.
** HP HP newsroom.newsroom.HP HP website,website,
This This step step typically typically includes includes an an
analanalysis ysis ofof “w “who ho are are the the
customers”customers” and and “wha“what t are are
their their needs needs as as they they (the (the
customercustomerss )) see see them.”them.”
The The next next step step is is an an assessment assessment
ofof the the internal internal and and external external
enenvirvironmentsonments. . WhaWhat t
are are the the internal internal strstrengths engths and and
weaknesses weaknesses ofof the the enterprise? enterprise?
Examples Examples ofof internal internal
strengths strengths or or wweaknesses eaknesses could could be
be core core competenciescompetencies, , such such as as
technologytechnology, , product product
qualityquality, , management management talent, talent, lolow
w debt, debt, and and dealer dealer netwnetworksorks. .
Managers Managers can can alter alter
internal internal strengths strengths and and
wweaknesseseaknesses. . Opportunities Opportunities and and
threathreats ts usually usually rrepresent epresent ex-ex-
ternal ternal fforces orces ffor or change change such such as as
technologytechnology, , industry industry structurestructure, ,
and and competition. competition.
CompetitivCompetitive e benchmarking benchmarking tools
tools are are sometimes sometimes used used here here to to
assess assess currcurrent ent and and
future future dirdirectionsections. . Opportunities Opportunities
and and threathreats ts are are the the flip flip sides sides ofof
each each otherother. . That That
isis, , a a threat threat can can be be perperceived ceived as as

an an opportunityopportunity, , or or vice vice versa. versa.
Examples Examples ofof perper-
ceivceived ed external external threathreats ts could could be be
a a slowing slowing ofof the the economyeconomy, , a a
maturing maturing life life cycyclecle, ,
Chapter Chapter 2 2 OOrgrganization anization Strategy
exexchange change ratesrates, , or or govgovernment ernment
regulation. regulation. TTypical ypical opportunities
opportunities are are incrincreasing easing
demand, demand, emeremerging ging markmarketsets, , and and
demogrademographicsphics. . Managers Managers or or
individual individual firms firms hahave ve
limited limited opportunities opportunities to to influence
influence such such external external enenvirvironmental
onmental factors; factors; howhoweverever, ,
in in recent recent years years notanotable ble exexceptions
ceptions hahave ve been been nenew w technologies
technologies such such as as Apple Apple using using
the the iPiPod od to to creacreate te a a markmarket et to to sell
sell music. music. The The kkeys eys are are to to attempt
attempt to to fforecast orecast fun-fun-
damental damental industry industry changes changes and and
stastay y in in a a prproactive oactive mode mode rarather ther
than than a a reactireactive ve
oneone. . This This assessment assessment ofof the the
external external and and internal internal enenvironments
vironments is is knoknown wn as as the the
SWSWOT OT analanalysis ysis (strengths(strengths, ,
weaknessesweaknesses, , opportunitiesopportunities, , and and

threathreats).ts).
FFrrom om this this analysisanalysis, , critical critical issues
issues and and strategic strategic alternaalternatives tives are
are identified. identified. Criti-Criti-
cal cal analysis analysis ofof the the strastrategies tegi es
includes includes asking asking questions: questions: Does Does
the the strategy strategy taktake e
advadvantage antage ofof our our core core competencies?
competencies? Does Does the the strastrategy tegy exploit
exploit our our competitivcompetitive e
advadvantage? antage? Does Does the the strastrategy tegy
maximizmaximize e meeting meeting customers’customers’
needs? needs? Does Does the the strastrat-t-
egy egy fit fit within within our our acceptaacceptable ble risk
risk range? range? These These strstrategic ategic
alternaalternatives tives arare e winnowed winnowed
dodown wn to to a a critical critical few few that that support
support the the basic basic mission.mission.
Strategy Strategy fforormulamulation tion ends ends with
with cascading cascading objectivobjectives es or or projects
projects assigned assigned to to
lolower wer divisionsdivisions, , departmentsdepartments, , or
or individualsindividuals. . FForormulamulating ting
strastrategy tegy might might range range
araround ound 20 20 percent percent ofof management’
management’s s effeffort, ort, while while determining
determining strstrategy ategy will will be be how how
implemented implemented might might consume consume 80 80
percent.percent.
Set Set Objectives Objectives to to AchievAchieve e
StrateStrategiesgies
ObjectivObjectives es translate translate the the
ororganizaganization tion strategy strategy into into specific,

specific, concrconcreteete, , measurameasurable ble
termsterms. . OrganizaOrganizational tional objectives
objectives set set tartargets gets ffor or all all levels levels ofof
the the organizaorganization. tion. Ob-Ob-
jectivjectives es pinpoint pinpoint the the direction direction
managers managers beliebelieve ve the the ororganization
ganization should should momove ve
totoward. ward. ObjectiObjectives ves ansanswer wer in in
detail detail wwhere here wwhen hen a a firm firm is is headed
headed and and it it is is going going to to
get get therethere. . TTypicallyypically, , objectives objectives
ffor or the the organizaorganization tion cocover ver
markmarketsets, , prproductsoducts, , inno-inno-
vavation, tion, productiproductivityvity, , qualityquality, ,
financefinance, , prprofitabilityofitability, ,
employemployeesees, , and and consumersconsumers. . In In
evevery ery casecase, , objectives objectives should should be
be as as operaoperational tional as as possiblepossible. . That
That isis, , objectivesobjectives
sshould hould include include a a time time frameframe, , be be
measurameasurableble, , be be an an identifiaidentifiable ble
statestate, , and and be be real-real-
istic. istic. DoranDoran created created the the memory memory
dedevice vice shown shown in in Exhibit Exhibit 2.1, 2.1,
wwhich hich is is useful useful
when when writing writing objectiobjectivesves..22
Each Each levlevel el below below the the ororganizational
ganizational objectiobjectives ves should should support
support the the higher-lehigher-level vel
objectivobjectives es in in more more detail; detail; this this is
is frequentlfrequently y called called cascading cascading ofof
objectives objectives. . FFor or ex-ex-
ampleample, , ifif a a firfirm m making making lealeather ther
luggage luggage sets sets an an objectivobjective e ofof
achieving achieving a a 40 40 percent percent

increase increase in in sales sales thrthrough ough a a
researresearch ch and and development development
strastrategytegy, , this this charge charge isis
passed passed to to the the markmarketing, eting, prproduction,
oduction, and and R&D R&D departmentsdepartments. . The
The R&D R&D depart-depart-
ment ment accepts accepts the the firm’firm’s s strastrategy
tegy as as their their objectiveobjective, , and and their their
strategy strategy becomes becomes the the
design design and and devdevelopment elopment ofof a a new
new “pull-type “pull-type luggaluggage ge with with hidden
hidden retractaretractable ble
wheelswheels.”.” At At this this point point the the
objectivobjective e becomes becomes a a project project to to be
be implemented—to implemented—to de-de-
velop velop the the rretractaetractable ble wheel wheel
luggaluggage ge ffor or markmarket et within within six six
months months within within a a budget budget
ofof $200,000. $200,000. In In summarysummary, ,
organizaorganizational tional objectives objectives drivdrive e
yyour our projectsprojects..
2 2 Doran, Doran, G. G. TT., ., “There’“There’s s a a Smart
Smart Way Way to to Write Write Management Management
Goals Goals and and Objectives,” Objectives,” Management
Management ReviewReview,, November November 1981, 1981,
pp. pp. 35–36.35–36.
EXHIBIT EXHIBIT 2.12.1
Characteristics Characteristics
ofof Objectiv Objectiveses
SS SpecificSpecific Be Be specific specific in in targeting
targeting an an objectiveobjective
MM MeasurableMeasurable Establish Establish a a
measurable measurable indicator(s) indicator(s) of of

progressprogress
AA AssignableAssignable Make Make the the objective
objective assignable assignable to to one one person person for
for completioncompletion
RR RealisticRealistic State State what what can can
realistically realistically be be done done with with available
available resourcesresources
TT TTime ime relatedrelated State State when when the the
objective objective can can be be achieved, achieved, that that
is, is, durationduration
StrStrategy ategy and and Project Project SelectionSelectio n
Implement Implement StrStrategies ategies through through
PrProjectsojects
ImplementaImplementation tion answanswers ers the the
question question ofof hohoww strategies strategies will will
be be rrealizealized, ed, givengiven
aavailavailable ble resourresourcesces. . The The conceptual
conceptual framewframework ork ffor or strastrategy tegy
implementation implementation lacks lacks
the the structure structure and and discipline discipline ffound
ound in in strategy strategy fforormulamulation. tion.
Implementation Implementation rre-e-
quires quires action action and and completing completing
tasks; tasks; the the lalatter tter frequentlfrequently y means
means mission-critical mission-critical
prprojectsojects. . TherefThereforeore, , implementation
implementation mmust ust include include attention attention to
to seseveral veral kkey ey areasareas..

First, First, completing completing tasks tasks requires
requires allocaallocation tion ofof resour resourcesces. .
RResources esources typically typically rrep-ep-
resent resent fundsfunds, , peoplepeople, , management
management talentstalents, , technological technological
skillsskills, , and and equipment. equipment. FFre-re-
quentlyquently, , implementation implementation ofof pr
projects ojects is is treated treated as as an an
“ad“addendum”dendum” ra rather ther than than an an
integral integral part part ofof the the strategic strategic
manamanagement gement prprocessocess. . HoHoweverwever, ,
multiple multiple objectiobjectives ves
place place conflicting conflicting demands demands on on
organizaorganizational tional resourcesresources. . Second,
Second, implementaimplementation tion
requirrequires es a a formal formal and and infinforormal mal
organizaorganization tion that that complements complements
and and supports supports strastrat-t-
egy egy and and prprojectsojects. . AAuthorityuthority, ,
responsibilityresponsibility, , and and perfperforormance mance
all all depend depend on on organi-organi-
zazation tion structure structure and and cultureculture. . Third,
Third, planning planning and and contrcontrol ol systems
systems must must be be in in place place
to to be be certain certain prproject oject activities activities
necessary necessary to to ensure ensure strastrategies tegies are
are effectieffectively vely perper--
fforormed. med. FFourth, ourth, motivamotivating ting prproject
oject contributors contributors will will be be a a major major
factor factor ffor or achiev-achiev-
ing ing prproject oject successsuccess. . FinallyFinally, , areas
areas receireceiving ving more more aattention ttention in in
recent recent years years are are
portfportfolio olio management management and and
prioritizing prioritizing prprojectsojects. . Although Although
the the strastrategy tegy implemen-implemen-

tatation tion process process is is not not as as clear clear as as
strastrategy tegy formulaformulation, tion, all all managers
managers realize realize thathat, t,
without without implementaimplementation, tion, success
success is is impossibleimpossible. . Although Although the the
four four major major steps steps ofof
strastrategic tegic management management prprocess ocess
hahave ve not not been been altered altered
significantlsignificantly y ovover er the the yearsyears, , the the
view view ofof the the time time horizon horizon in in the the
strastrategy tegy formulaformulation tion process process has
has been been alteraltered ed radi-radi-
cally cally in in the the last last twtwo o decadesdecades. .
Global Global competition competition and and rapid rapid
innoinnovavation tion require require be-be-
ing ing highly highly adaadaptive ptive to to short-run short-run
changes changes wwhile hile being being consistent consistent
in in the the longer longer run.run.
The The Need Need for for a a Project Project Portfolio
Portfolio Management Management SystemSystem
ImplementaImplementation tion ofof pr projects ojects without
without a a strong strong link linked ed to to strategystrategy
prioritypriority systemsystem
creacreates tes prproblemsoblems. . Three Three ofof the the
most most obvious obvious prproblems oblems are are discussed
discussed belobeloww. . A A
prproject oject portfolioportfolio system system can can go go
a a long long waway y to to reducereduce, , or or even even
eliminaeliminatete, , the the impact impact
ofof these these probproblemslems..
Problem Problem 1: 1: The The Implementation Implementation
GapGap
In In ororganizations ganizations with with short short
prproduct oduct life life cyclescycles, , it it is is interesting

interesting to to note note thathat t fre-fre-
quently quently participaparticipation tion in in strategic
strategic planning planning and and implemimplementaentation
tion includes includes partici-partici-
pants pants frfrom om all all levels levels within within the the
ororganizaganization. tion. HoweHoweverver, , in in perhaps
perhaps 80 80 perpercent cent ofof
the the remaining remaining prproduct oduct and and service
service ororganizationsganizations, , top top management
management pretty pretty mmuch uch
fforormulamulates tes strategy strategy and and lealeaves ves
strastrategy tegy implementaimplementation tion to to
functional functional managersmanagers. .
Within Within these these brbroad oad constraintsconstraints, ,
more more detailed detailed strastrategies tegies and and
objectivobjectives es are are devel-devel-
oped oped by by the the functional functional
manamanagersgers. . The The fact fact that that these these
objectiobjectives ves and and strastrategies tegies are are
made made independentlyindependently a at t different different
lelevels vels bby y functional functional groups groups within
within the the ororganiza-ganiza-
tion tion hierarchhierarchy y causes causes manifold manifold
prproblemsoblems..
Some Some symptoms symptoms ofof organiza organizations
tions struggling struggling with with strastrategy tegy
disconnect disconnect and and un-un-
clear clear priorities priorities are are prpresented esented
herehere..
• • Conflicts Conflicts frequentlfrequently y occur occur
among among functional functional managers managers and and
cause cause lack lack ofof trust. trust.
• • FFrequent requent meetings meetings are are called called
to to estaestablish blish or or renegotiarenegotiate te

prioritiespriorities..
• • PPeople eople frequentlfrequently y shift shift from from
one one prproject oject to to anotheranother, , depending
depending on on currentcurrent
prioritypriority. . EmploEmployees yees are are confused
confused aabout bout which which prprojects ojects are are
important.important.
• • People People arare e worworking king on on multiple
multiple prprojects ojects and and feel feel
inefficient.inefficient.
• • RResources esources are are not not adequaadequatete..
Because Because clear clear linkages linkages do do not not
eexist, xist, the the organizaorganizational tional
enenvirvironment onment becomes becomes dys-dys-
functional, functional, confused, confused, and and ripe ripe
ffor or ineffectiineffective ve implementaimplementation tion
ofof or organization ganization
strastrategy tegy and, and, thusthus, , ofof pr projectsojects. .
The The refers refers to to the the lack lack ofof under under -
-implementation implementation gapgap
standing standing and and consensus consensus ofof organiza
organization tion strategy strategy among among top top and
and midmiddle-level dle-level
managersmanagers..
A A scenario scenario the the authors authors hahave ve seen
seen repearepeated ted severseveral al times times

follofollowsws. . TTop op manage-manage-
ment ment picks picks their their top top 20 20 prprojects ojects
ffor or the the next next planning planning period, period,
without without prioritiespriorities. .
Each Each functional functional department—markdepartment—
marketing, eting, financefinance, , operationsoperations, ,
engineering, engineering, infinfor-or-
mamation tion technologytechnology, , and and human human
resources—selects resources—selects prprojects ojects from
from the the list. list. UnfUnfortu-ortu-
nanatelytely, , independent independent departmdepartment ent
priorities priorities acracross oss projects projects arare e not
not homogenoushomogenous. . A A
prproject oject that that rarates tes first first in in the the IT IT
department department can can rate rate 10th 10th in in the the
finance finance depart-depart-
ment. ment. ImplementaImplementation tion ofof the the
prprojects ojects represents represents conflicts conflicts ofof
interest interest with with animos-animos-
ities ities devdeveloping eloping ovover er organizaorganization
tion resourcesresources..
IfIf this this condition condition existsexists, , how how is
is it it possible possible to to efeffectivelfectively y implement
implement strategy? strategy? The The
prproblem oblem is is seriousserious. . One One study study
ffound ound that that onlonly y aabout bout 25 25 percent
percent ofof ForFortunetune 500500
exexecutives ecutives believbelieve e there there is is a a
strstrong ong linkagelinkage, , consistencyconsistency, , and/or
and/or agreement agreement betwbetween een
the the strastrategies tegies they they fforormulamulate te and
and implementation. implementation. In In another another
studstudy y ofof Deloitte Deloitte
Consulting, Consulting, JJeffeff MacIntyre MacIntyre
rreportseports, , “Only “Only 23 23 percent percent ofof nearly

nearly 150 150 global global eexecu-xecu-
tivtives es considered considered their their prproject oject
portfolios portfolios aligned aligned with with the the corcore e
businessbusiness.”.”33 Middle Middle
managers managers considerconsidered ed
organizaorganizational tional strastrategy tegy to to be be under
under the the purview purview ofof others others or or
not not in in their their realm realm ofof influence influence. . It
It is is the the responsibility responsibility ofof senior senior
management management to to set set
policies policies thathat t show show a a distinct distinct link
link betwbetween een organizaorganizational tional strategy
strategy and and objectiobjectives ves
and and prprojects ojects that that implement implement those
those strastrategiestegies. . The The researresearch ch ofof
Fusco Fusco suggests suggests the the
implementaimplementation tion gap gap and and prioritizing
prioritizing prprojects ojects are are still still
ooverlookverlooked ed by by manmany y organi-organi-
zazationstions. . He He surveyed surveyed 280 280 prproject
oject managers managers and and ffound ound thathat t 24 24
percent percent ofof their their
organizaorganizations tions did did not not eveven en publ ish
publish or or circulacirculate te their their objectives;
-per-
cent cent ofof the the respondents respondents reported
reported thathat t priorities priorities among among competing
competing projects projects wwere ere
not not clearclear, , while while onlonly y 17 17 percent percent
reported reported clear clear prioritiespriorities..44
Problem Problem 2: 2: Organization Organization
PoliticsPolitics
PPolitics olitics exist exist in in eevery very
organizaorganization tion and and can can hahave ve a a
significant significant influence influence on on which which

prprojects ojects receivreceive e funding funding and and high
high prioritypriority. . This This is is especially especially true
true wwhen hen the the criteria criteria
and and prprocess ocess ffor or selecting selecting projects
projects arare e ill-defined ill-defined and and not not aligned
aligned with with the the mission mission
ofof the the firfirm. m. Project Project selection selection
mamay y be be based based not not so so much much on on
facts facts and and sound sound reason-reason-
ing, ing, but but rrather ather on on the the
persuasipersuasiveness veness and and powpower er ofof
people people advadvocating ocating prprojectsojects..
The The term term “sacred “sacred cow”cow” is is often
often used used to to denote denote a a prproject oject that that
a a popowerful, werful,
high-ranking high-ranking ofofficial ficial is is advadvocating.
ocating. Case Case in in point, point, a a marmarketing keting
consultant consultant confidconfided ed
thathat t he he was was once once hired hired bby y the the
markmarketing eting director director ofof a a large large firm
firm to to conduct conduct an an in-in-
dependent, dependent, external external marmarket ket
analanalysis ysis ffor or a a new new prproduct oduct the the
firfirm m was was interested interested in in
devdeveloping. eloping. His His extensive extensive rresearch
esearch indicaindicated ted that that therthere e was was
insufinsufficient ficient demand demand to to
warrwarrant ant the the financing financing ofof this this new
new prproduct. oduct. The The markmarketing eting director
director chose chose to to bbury ury
the the report report and and made made the the consultant
consultant prpromise omise nevnever er to to share share this
this infinforormation mation with with
ananyyoneone. . The The director director explained explained
thathat t this this new new prproduct oduct was was the the “pet

“pet idea”idea” of of the the new new
3 3 MacIntyre, MacIntyre, J., J., vol. vol. 20 20 (11) (11)
November November 2006, 2006, pp. pp. 32–35.32–35.PM PM
Network,Network,
4 4 Fusco, Fusco, J. J. C., C., “Better “Better Policies Policies
Provide Provide the the Key Key to to Implementing
Implementing Project Project Management,” Management,”
Project Project Management Management Journal,Journal, vol.
vol. 28 28 (3) (3)
1997, 1997, pp. pp. 38–41.38–41.
CEOCEO, , who who sasaw w it it as as his his legacy legacy to
to the the firfirm. m. He He went went on on to to describe
describe the the CEO’CEO’s s irra-irra-
tional tional obsession obsession with with the the prproject
oject and and how how he he rreferred eferred to to it it as as
his his “new “new bababyby.”.” Like Like
a a parent parent fierfiercely cely prprotecting otecting his his
child, child, the the markmarketing eting director director
believbelieved ed that that he he wwould ould
lose lose his his job job ifif such such critical critical
informainformation tion ever ever became became
knoknown.wn.
Project Project sponsors sponsors plaplay y a a significant
significant role role in in the the selection selection and and
successful successful imple-imple-
mentamentation tion ofof pr product oduct innovinnovation

ation prprojectsojects. . PrProject oject sponsors sponsors are
are typicallytypically
high-ranking high-ranking manamanagers gers who who endorse
endorse and and lend lend political political support support
ffor or the the completion completion
ofof a a specific specific project. project. They They arare e
instrumental instrumental in in winning winning apprapprovoval
al ofof the the prproject oject and and
in in prprotecting otecting the the project project during during
the the critical critical dedevelopment velopment stastagege. .
The The importance importance ofof
prproject oject sponsors sponsors should should not not be be
taken taken lightllightlyy. . FFor or exampleexample, , a a PMI
PMI global global survey survey ofof
oover ver 1,000 1,000 prproject oject practitioners practitioners
and and leaders leaders oover ver a a variety variety ofof
industries industries ffound ound
those those ororganizations ganizations hahaving ving active
active sponsors sponsors on on aat t least least 80 80 percent
percent ofof their their projects/projects/
prprograms ograms hahave ve a a success success rarate te ofof
75 75 percent, percent, eleeleven ven percentapercentagge e
points points aabovbove e the the
survey survey aaveraverage ge ofof 64 64 percent. percent.
ManMany y promising promising prprojects ojects hahave ve
failed failed to to succeed succeed due due
to to lack lack ofof strong strong sponsorshipsponsorship..55
The The significance significance ofof corpora corporate te
politics politics can can be be seen seen in in the the ill -fated
ill-fated ALALTO TO computer computer
prproject oject at at XerXerox ox during during the the mid-
1970smid-1970s..66 The The prproject oject was was a a
tremendous tremendous technolotechnological gical
success; success; it it devdeveloped eloped the the first first
worworkakable ble mousemouse, , the the first first laser laser

printerprinter, , the the first first
user-friendluser-friendly y softwaresoftware, , and and the the
first first local local area area networnetwork. k. All All ofof
these these devdevelopments elopments
werwere e five five years years ahead ahead ofof their their
nearest nearest competitorcompetitor. . Over Over the the next
next fivfive e years years this this
opportunity opportunity to to dominadominate te the the nascent
nascent personal personal computer computer markmarket et
was was squandered squandered
because because ofof internal internal in-fighting in-fighting at
at XerXerox ox and and the the aabsence bsence ofof a a
strstrong ong prproject oject sponsorsponsor. .
(Apple’(Apple’s s MacIntosh MacIntosh computer computer
was was inspired inspired bby y manmany y ofof these these
developmentsdevelopments.).)
PPolitics olitics can can play play a a rrole ole not not only
only in in prproject oject selection selection but but also also in
in the the aspiraaspirations tions
behind behind prprojectsojects. . Individuals Individuals can
can enhance enhance their their powpower er within within an
an organizaorganization tion by by
managing managing eextraordinary xtraordinary and and critical
critical prprojectsojects. . PPowower er and and status status
nanaturallturally y accrue accrue to to
successful successful innoinnovavators tors and and risk risk
takers takers rrather ather than than to to steadsteady y
prproducersoducers. . ManMany y ambi-ambi-
tious tious managers managers pursue pursue high-prhigh-
profile ofile projects projects as as a a means means ffor or
moving moving quicklquickly y up up the the
corporacorporate te ladderladder..
ManMany y would would arargue gue thathat t politics
politics and and project project manamanagement gement should
should not not mix. mix. A A

more more prproactivoactive e response response is is that that
prprojects ojects and and politics politics ininvariavariablbly y
mix mix and and that that efeffec-fec-
tivtive e project project manamanagers gers recorecognizgnize e
that that anany y significant significant project project has has
political political rramifica-amifica-
tionstions. . LikLikewiseewise, , top top management
management needs needs to to dedevelop velop a a system
system ffor or identifying identifying and and
selecting selecting prprojects ojects that that rreduces educes
the the impact impact ofof internal internal politics politics
and and ffosters osters the the selec-selec-
tion tion ofof the the best best projects projects ffor or
achieving achieving the the mission mission and and
strastrategy tegy ofof the the firfirm.m.
Problem Problem 3: 3: Resource Resource Conflicts Conflicts
and and MultitaskingMultitasking
Most Most prproject oject organizaorganizations tions exist
exist in in a a mmultiproject ultiproject enenvironment.
vironment. This This enenvirvironment onment
creacreates tes the the prproblems oblems ofof pr project oject
interdependency interdependency and and the the need need to
to share share rresourcesesources. .
FFor or exampleexample, , whawhat t would would be be the
the impact impact on on the the lalabor bor resource resource
pool pool ofof a a construc-construc-
tion tion compancompany y ifif it it should should win win a a
contract contract it it wwould ould liklike e to to bid bid on?
on? Will Will existingexisting
lalabor bor be be adequate adequate to to deal deal with with
the the new new prproject—given oject—given the the
completion completion dadate? te? Will Will
current current prprojects ojects be be deladelayed? yed? Will
Will subcontrsubcontracting acting help? help? Which Which

prprojects ojects will will hahave ve
priority? priority? Competition Competition among among
prproject oject managers managers can can be be
contentiouscontentious. . All All project project
managers managers seek seek to to hahave ve the the best best
people people ffor or their their projectsprojects. . The The
probproblems lems ofof sharing sharing
resourresources ces and and scheduling scheduling resources
resources acracross oss prprojects ojects grogrow w
exponentiallexponentially y as as the the
55 PMI, PMI, “PMI’“PMI’s s Pulse Pulse of of the the
Profession,” Profession,” March March 2012, 2012, Project
Project Management Management Institute, Institute, p. p. 7.7.
6 6 Smith, Smith, D. D. K., K., and and R. R. C. C.
AlexanderAlexander, , Fumbling Fumbling the the Future:
Future: How How Xerox Xerox Invented, Invented, Then Then
Ignored Ignored the the First First Personal Personal
ComputerComputer
(New (New YYork: ork: Macmillan, Macmillan, 1988).1988).
nnumber umber ofof pr projects ojects risesrises. . In In
multiprmultiproject oject enenvironments vironments the the
stakstakes es are are higher higher and and
the the benefits benefits or or penalties penalties ffor or good
good or or bad bad resource resource scheduling scheduling
become become eeven ven more more
significant significant than than in in most most single single
prprojectsojects..

RResource esource sharing sharing also also leads leads to to
mmultitasking. ultitasking. Multitasking Multitasking
ininvolves volves starting starting and and
stopping stopping wwork ork on on one one task task to to go
go and and wwork ork on on another another prproject, oject,
and and then then returning returning
to to the the wwork ork on on the the original original task.
task. People People wworking orking on on severseveral al tasks
tasks concurrently concurrently arare e
far far less less efefficient, ficient, especially especially wwhere
here conceptual conceptual or or phphysical ysical
shutdoshutdown wn and and startup startup are are
significant. significant. Multitasking Multitasking adds adds to
to deladelays ys and and costscosts. . Changing Changing
priorities priorities exacerbaexacerbate te
the the multitasking multitasking prproblems oblems eveven en
moremore. . LikeLikewisewise, , multitasking multitasking is is
more more eevident vident in in
ororganizations ganizations thathat t hahave ve too too
manmany y projects projects ffor or the the resources resources
they they command.command.
The The nnumber umber ofof small small and and large
large prprojects ojects in in a a portfolio portfolio almost almost
alalwaways ys exexceeds ceeds the the
aavailavailable ble resourresources ces (typically (typically bby
y a a factor factor ofof three three to to ffour our times times
the the aavailavailable ble rre-e-
sources). sources). This This cacapacity pacity ovoverload
erload inevitainevitably bly leads leads to to confusion
confusion and and inefinefficient ficient use use
ofof scarce scarce organizaorganizational tional
resourresourcesces. . The The presence presence ofof an an
implementation implementation gagapp, , ofof
popower wer politicspolitics, , and and ofof m multitasking
ultitasking adds adds to to tthe he prproblem oblem ofof w
which hich projects projects arare e

allocated allocated rresources esources first. first.
EmploEmployee yee morale morale and and confidence
confidence sufsuffer fer because because it it is is
difficult difficult to to makmake e sense sense ofof an an
ambiguous ambiguous system. system. A A multiprmultiproject
oject organizaorganization tion enenvi-vi-
rronment onment faces faces major major probproblems lems
without without a a priority priority system system that that is
is clearclearly ly linklinked ed to to
the the strastrategic tegic plan.plan.
In In essenceessence, , to to this this point point we we
hahave ve suggested suggested thathat t manmany y
organizaorganizations tions hahave ve no no
meaningful meaningful prprocess ocess ffor or addressing
addressing the the prproblems oblems we we hahave ve
described. described. The The first first and and
most most important important change change thathat t will will
go go a a long long waway y in in addressing addressing these
these and and otherother
prproblems oblems is is the the devdevelopment elopment and
and use use ofof a a meaningful meaningful prproject oject
priority priority process process ffor or
prproject oject selection.selection.
How How can can the the implementaimplementation tion
gap gap be be narrnarroowed wed so so that that understanding
understanding and and con-con-
sensus sensus ofof organiza organizational tional strategies
strategies run run thrthrough ough all all levels levels ofof
management? management? HoHow w
can can popower wer politics politics be be minimized?
minimized? Can Can a a process process be be dedeveloped
veloped in in which which prprojects ojects
are are consistentlconsistently y prioritizprioritized ed to to
support support ororganizational ganizational strastrategies?

tegies? Can Can the the priori-priori-
tized tized projects projects be be used used to to allocaallocate
te scarce scarce organizaorganizational tional resources—
fresources—for or exampleexample, ,
peoplepeople, , equipment? equipment? Can Can the the process
process encouraencourage ge bottom-up bottom-up
initiainitiation tion ofof projects projects
thathat t support support clear clear organizaorganizational
tional targets?targets?
WWhat hat is is needed needed is is a a set set ofof integra
integrative tive criteria criteria and and a a prprocess ocess ffor
or evaluaevaluating ting and and
selecting selecting prprojects ojects that that support support
higherhigher-level -level strastrategies tegies and and
objectivesobjectives. . A A single-prsingle-projectoject
priority priority system system thathat t ranks ranks projects
projects bby y their their contribution contribution to to the the
strstrategic ategic plan plan
wwould ould make make life life easiereasier. . Easily Easily
said, said, bbut ut difficult difficult to to accomplish
accomplish in in practicepractice. . Organi-Organi-
zazations tions that that manamanaged ged independent
independent projects projects and and allocaallocated ted
resources resources ad ad hoc hoc hahave ve
shifted shifted ffocus ocus to to selecting selecting the the right
right portfportfolio olio ofof pr projects ojects to to achieve
achieve their their strastrategic tegic
objectivobjectiveses. . This This is is a a quickquickening ening
trend. trend. The The advadvantages antages ofof successful
successful prproject oject port-port-
ffolio olio systems systems are are becoming becoming well
well rrecognized ecognized in in prproject-driven oject-driven
ororganizationsganizations. . See See
Exhibit Exhibit 2.2, 2.2, which which lists lists a a fefew w key
key benefits; benefits; the the list list could could easileasily y

be be extended.extended.
A A prproject oject portfolio portfolio system system is is
discussed discussed nenext xt with with emphasis emphasis on
on selection selection criteria, criteria,
which which is is wwhere here the the popower wer ofof the
the portfolio portfolio system system is is
estaestablished.blished.
EXHIBIT EXHIBIT 2.22.2
Benefits Benefits ofof Pr Project oject
PPortfolio ortfolio
ManagementManagement
• • Builds Builds discipline discipline into into project project
selection selection process.process.
• • Links Links project project selection selection to to
strategic strategic metrics.metrics.
• • Prioritizes Prioritizes project project proposals proposals
across across a a common common set set of of criteria, criteria,
rather rather than than on on politics politics or or
emotion.emotion.
• • Allocates Allocates resources resources to to projects
projects that that align align with with strategic strategic
direction.direction.
• • Balances Balances risk risk across across all all
projects.projects.
• • Justifies Justifies killing killing projects projects that that
do do not not support support organization organization
strategystrategy..
• • Improves Improves communication communication and and
supports supports agreement agreement on on project project
goals.goals.

A A Portfolio Portfolio Management Management
SystemSystem
Succinctly Succinctly put, put, the the aim aim ofof portf
portfolio olio management management is is to to ensurensure e
that that prprojects ojects are are
aligned aligned with with strastrategic tegic goals goals and and
prioritizprioritized ed apprappropriatelopriatelyy. . As As FFoti
oti points points out, out,
portfportfolio olio management management asks asks
“W“Whahat t is is strategic strategic to to our our
ororganization?”ganization?” (2002) (2002)
PPortfortfolio olio management management prproovides vides
informainformation tion that that alloallows ws people people to
to make make betterbetter
business business decisionsdecisions. . Since Since prprojects
ojects clamoring clamoring for for funding funding and and
people people usuallusually y out-out-
nnumber umber aavailavailable ble resourresourcesces, , it it is
is important important to to follofollow w a a logical logical
and and defined defined prprocess ocess
ffor or selecting selecting the the prprojects ojects to to
implement.implement.
Design Design ofof a a project project portfportfolio olio
system system should should include include classification
classification ofof a a project, project,
selection selection criteria criteria depending depending upon
upon classificaclassification, tion, sources sources ofof pr
proposalsoposals, , evevaluating aluating
prproposalsoposals, , and and managing managing the the
portfportfolio olio ofof pr projectsojects..

Classification Classification of of the the ProjectProject
ManMany y organizaorganizations tions find find they they
hahave ve three three basic basic kinds kinds ofof projects
projects in in their their portfportfolio: olio:
compliancecompliance (emer (emergency—must gency—must
do), do), operoperational,ational, strategicstrategic and and pr
projectsojects. . (See (See
Figure Figure 2.2.) 2.2.) Compliance Compliance prprojects
ojects are are typicalltypically y those those needed needed to
to meet meet regularegulatory tory con-con-
ditions ditions requirrequired ed to to operate operate in in a a
rregion; egion; hencehence, , they they are are called called
“must “must do”do” projects projects. .
EmerEmergency gency projectsprojects, , such such as as
building building an an auto auto parts parts factory factory
destrdestroyed oyed bby y tsunami, tsunami,
is is an an example example ofof a a must-do must-do
prproject. oject. Compliance Compliance and and
emeremergency gency projects projects usuausualllly y
hahave ve penalties penalties ifif they they are are not not
implemented. implemented. OperOperational ational prprojects
ojects are are those those thathat t are are
needed needed to to support support current current
operaoperationstions. . These These prprojects ojects are are
designed designed to to imprimprovove e effi-effi-
ciency ciency ofof delivery delivery systemssystems, , reduce
reduce prproduct oduct costscosts, , and and improimprove ve
perfperforormancemance. . Some Some
ofof these these projectsprojects, , given given their their
limited limited scope scope and and cost, cost, rrequire equire
only only immediaimmediate te man-man-
ager ager aapprpprovoval, al, while while biggerbigger, , more
more expensivexpensive e projects projects need need
eextensive xtensive rrevieweview. . Choos-Choos-
ing ing to to install install a a new new piece piece ofof
equipment equipment wwould ould be be an an example

example ofof the the lalatter tter while while
modifying modifying a a prproduction oduction process process
wwould ould be be an an example example ofof the the
fforormermer. . TTotal otal quality quality
management management (TQM) (TQM) prprojects ojects are
are examples examples ofof opera operational tional
projectsprojects. . FinallyFinally, , strastrate-te-
gic gic prprojects ojects are are those those thathat t directly
directly support support the the ororganizaganization’tion’s s
long-run long-run mission. mission.
They They frequentlfrequently y are are directed directed
totowarward d increasing increasing revrevenue enue or or
marmarket ket sharsharee. . Examples Examples
ofof strategic strategic prprojects ojects are are new new
prproductsoducts, , research, research, and and dedevelopment.
velopment. FFor or a a good, good,
complete complete discussion discussion on on
classificaclassification tion schemes schemes found found in in
prpracticeactice, , see see CraCrawforwford, d,
HobHobbsbs, , and and TTurneurne..
FFrequentlyrequently, , these these three three classifications
classifications arare e further further decomposed decomposed
by by prproduct oduct typetype, ,
ororganization ganization divisions divisions and and functions
functions thathat t will will require require difdifferent ferent
criteria criteria ffor or prproject oject
selection. selection. FFor or exampleexample, , the the same
same criteria criteria for for the the finance finance or or legal
legal didivision vision would would
ComplianceCompliance
(must (must do)do)
projectsprojects
OperationalOperational

projectsprojects
StrategicStrategic
projectsprojects
FIGURE FIGURE 2.22.2
PPortfolio ortfolio ofof Projects Projects
by by TTypeype
not not applapply y to to the the IT IT (inf(inforormation mation
technolotechnology) gy) department. department. This This
often often requires requires difdif--
ferent ferent prproject oject selection selection criteria criteria
within within the the basic basic three three
classificaclassifications tions ofof stra strategic, tegic,
operaoperational, tional, and and compliance compliance
projectsprojects..
Selection Selection CriteriaCriteria
Although Although there there arare e many many criteria
criteria ffor or selecting selecting prprojectsojects, , selection
selection criteria criteria are are typitypi--
cally cally identified identified as as and and . . A A short
short description description ofof each each is is givgiven en
financialfinancial nonfinancialnonfinancial
next, next, ffollowollowed ed by by a a discussion discussion
ofof their their use use in in practicepractice..
Financial Financial CriteriaCriteria

Financial Financial ModelsModels FFor or most most
managers managers financial financial criteria criteria arare e
the the preferred preferred method method
to to evevaluate aluate prprojectsojects. . These These models
models are are aappropriappropriate te when when therthere e is
is a a high high level level ofof
confidence confidence associaassociated ted with with estimates
estimates ofof future future cash cash flowsflows. . TTwo wo
models models and and eexam-xam-
ples ples are are demonstrademonstrated ted here—here— and
and paybackpayback net net prpresent esent valuevalue (NPV).
(NPV).
PrProject oject AA has has an an initial initial invinvestment
estment ofof $700,000 $700,000 and and prprojected ojected
cash cash inflows inflows ofof
$225,000 $225,000 ffor or 5 5 yearsyears..
PrProject oject BB has has an an initial initial invinvestment
estment ofof $400,000 $400,000 and and prprojected ojected
cash cash inflows inflows ofof
$110,000 $110,000 ffor or 5 5 yearsyears..
1. 1. The The papayback yback model model measures measures
the the time time it it will will take take to to rrecoecover ver
the the prproject oject
ininvestment. vestment. Shorter Shorter papaybacks ybacks are
are mormore e desiradesirableble. . PaPayback yback is is the
the simplest simplest and and
most most widely widely used used model. model. PPaayback
yback emphasizemphasizes es cash cash flowsflows, , a a key
key factor factor in in bbusinessusiness. .
Some Some managers managers use use the the papayback
yback model model to to eliminate eliminate ununusually
usually riskrisky y prprojects ojects (those (those
with with lengthlengthy y papayback yback periods). periods).

The The major major limitations limitations ofof pa payback
yback are are that that it it igig--
nores nores the the timtime e value value ofof money money, ,
assumes assumes cash cash inflows inflows ffor or the the
ininvestment vestment periodperiod
(and (and not not beybeyond), ond), and and does does not not
consider consider prprofitabilityofitability. . The The papayback
yback fforormula mula isis
PaPayback yback period period (yrs) (yrs) Estimated
Estimated PrProject oject Cost/AnnCost/Annual ual
SaSavingsvings55
Exhibit Exhibit 2.3 2.3 compares compares the the papayback
yback for for PrProject oject A A and and Project Project BB. .
The The papayback yback ffor or
PrProject oject A A is is 3.1 3.1 years years and and ffor or
Project Project B B is is 3.6 3.6 yyearsears. . Using Using the
the papayback yback method method
both both prprojects ojects are are acceptaacceptable ble since
since both both return return the the initial initial ininvestment
vestment in in less less than than
fivfive e years years and and hahave ve returns returns on on
the the invinvestment estment ofof 32.1 32.1 and and 27.5 27.5
percent. percent. PPaybackayback
prprovides ovides especiallespecially y useful useful
infinforormation mation ffor or firfirms ms concerned
concerned with with liquidity liquidity and and hahavv--
ing ing sufsufficient ficient resources resources to to
manamanage ge their their financial financial
obligaobligationstions..
Exhibit Exhibit 2.3 2.3 A A prpresents esents the the payback
payback method.method.
2. 2. The The net net present present vvalue alue (NPV) (NPV)
model model uses uses management’management’s s minimum

minimum desirdesired ed
rarate-of-return te-of-return (discount (discount raratete, , ffor
or exampleexample, , 20 20 percent) percent) to to compute
compute the the present present
valuvalue e ofof all all net net cash cash infloinflowsws. . IfIf
the the result result is is positipositive ve (the (the prproject
oject meets meets the the minimini--
mum mum desirdesired ed rate rate ofof return), return), it it is
is eligibeligible le for for further further considerconsideration.
ation. IfIf the the result result is is
neganegativetive, , the the prproject oject is is rerejected.
jected. ThusThus, , higher higher positivpositive e NPV’NPV’s
s are are desiradesirableble. . Excel Excel
uses uses this this fforormulamula
PP roject roject NPVNPV II55 00 11 aa
nn
tt 1155
I I00 Initial Initial ininvestment vestment (since (since it it is
is an an outflooutfloww, , the the nnumber umber will will be
be negatinegative)ve)55
FFtt Net Net cash cash inflow inflow ffor or period period 55
tt
k k R Required equired rarate te ofof return return55
StrStrategy ategy and and Project Project SelectionSelecti on
Exhibit Exhibit 2.3B 2.3B presents presents the the NPV NPV

model model using using MicrMicrosoft osoft Excel Excel
softwsoftwareare. . The The NPV NPV
model model accepts accepts prproject oject A, A, which which
has has a a positivpositivee NPV NPV ofof $54,235. $54,235.
PrProject oject B B is is rere--
jected jected since since the the NPV NPV is is
negnegativeative $31,263. $31,263. Compare Compare the the
NPV NPV rresults esults with with the the papayy--
back back resultsresults. . The The NPV NPV model model is is
more more realistic realistic because because it it considers
considers the the time time vvalue alue
ofof money money, , cash cash flowsflows, , and and
prprofitabilityofitability..
When When using using the the NPV NPV model, model, the
the discount discount rrate ate (r(return eturn on on
invinvestment estment hurdle hurdle
rarate) te) can can differ differ ffor or differdifferent ent
projectsprojects. . FFor or exampleexample, , the the expected
expected RROI OI on on strategicstrategic
prprojects ojects is is frequently frequently set set higher higher
than than operoperational ational prprojectsojects. .
SimilarlySimilarly, , RROI’OI’s s can can
difdiffer fer for for riskier riskier vversus ersus safer safer
projectsprojects. . The The criteria criteria ffor or setting
setting the the RROI OI hurdle hurdle rarate te
should should be be clear clear and and applied applied
consistentlconsistentlyy..
EXHIBIT EXHIBIT 2.3A 2.3A Example Example
Comparing Comparing TTwo wo Projects Projects Using Using
PPayback ayback MethodMethod
EXHIBIT EXHIBIT 2.3B 2.3B Example Example
Comparing Comparing TTwo wo Projects Projects Net Net
PrPresent esent VValue alue MethodMethod

UnfUnfortunatelortunatelyy, , pure pure financial financial
models models fail fail to to include include manmany y
projects projects wwhere here finan-finan-
cial cial return return is is impossibimpossible le to to measure
measure and/or and/or other other factors factors are are vital
vital to to the the accept accept or or
reject reject decision. decision. One One rresearch esearch
study study bby y FFoti oti showed showed thathat t companies
companies using using predom-predom-
inantly inantly financial financial models models to to prioritize
prioritize prprojects ojects yielded yielded unbalanced
unbalanced portfportfolios olios and and
prprojects ojects that that araren’en’t t strastrategically
tegically oriented oriented (2003).(2003).
Nonfinancial Nonfinancial CriteriaCriteria
Financial Financial return, return, wwhile hile important,
important, does does not not alwaalways ys reflect reflect
strastrategic tegic importanceimportance. .
The The sixties sixties and and sevseventies enties sasaw w
firfirms ms become become oovereverextended xtended by by
divdiversifying ersifying too too
much. much. NoNow w the the prevprevailing ailing thinking
thinking is is that that long-term long-term survival survival is
is dependent dependent upon upon
devdeveloping eloping and and maintaining maintaining core
core competenciescompetencies. . Companies Companies
hahave ve to to be be disciplined disciplined

in in sasaying ying no no to to potentially potentially
prprofitabofitable le projects projects thathat t are are outside
outside the the realm realm ofof their their
cocore re mission. mission. This This rrequires equires other
other criteria criteria be be considered considered beybeyond
ond direct direct financial financial
return. return. FFor or exampleexample, , a a firfirm m mamay y
support support projects projects thathat t do do not not hahave
ve high high prprofit ofit mar-mar-
gins gins ffor or other other strastrategic tegic reasons reasons
including:including:
TTo o capture capture larlarger ger markmarket et shareshare
TTo o make make it it difdifficult ficult ffor or competitors
competitors to to enter enter the the markmarke tet
TTo o develop develop an an enaenabler bler prproduct, oduct,
which which by by its its intrintroduction oduction will will
increase increase sales sales in in
more more prprofitaofitable ble prproductsoducts
TTo o develop develop core core technolote chnology gy that
that will will be be used used in in nenext-generaxt-generation
tion productsproducts
TTo o reduce reduce dependency dependency on on
unreliaunreliable ble supplierssuppliers
TTo o prevent prevent gogovernment vernment intervention
intervention and and regularegulationtion
Less Less tangible tangible criteria criteria mamay y also also
applapplyy. . OrOrganizations ganizations mamay y support
support prprojects ojects to to re-re-
store store corporacorporate te image image or or enhance
enhance brand brand recorecognition. gnition. ManMany y
organizaorganizations tions are are
committed committed to to corporacorporate te citizcitizenship
enship and and support support community community
dedevelopmentvelopment

prprojectsojects..
Since Since no no single single criterion criterion can can
reflect reflect strastrategic tegic significancesignificance, ,
portfportfolio olio manage-manage-
ment ment requirrequires es multi-criteria multi-criteria
screening screening modelsmodels. . These These models
models often often weight weight individ-individ-
ual ual criteria criteria so so those those prprojects ojects that
that contribcontribute ute to to the the most most important
important strastrategic tegic
objectivobjectives es are are given given higher higher
considerconsideration.ation.
TTwo wo Multi-Criteria Multi-Criteria Selection Selection
ModelsModels
Since Since no no single single criterion criterion can can
reflect reflect strastrategic tegic significancesignificance, ,
portfportfolio olio management management
requirrequires es multi-criteria multi-criteria screening
screening modelsmodels. . TTwo wo modelsmodels, , the the
checklist checklist and and multi-multi-
weighted weighted scoring scoring modelsmodels, , are are
described described next.next.
Checklist Checklist ModelsModels The The most most
frequentlfrequently y used used method method in in selecting
selecting prprojects ojects has has
been been the the checklist. checklist. This This apprapproach
oach basically basically uses uses a a list list ofof questions
questions to to reviereview w po-po-
tential tential prprojects ojects and and to to deterdetermine
mine their their acceptance acceptance or or rejection. rejection.
SevSeveral eral ofof the the typ-typ-
ical ical questions questions ffound ound in in practice practice
are are listed listed in in Exhibit Exhibit 2.4. 2.4. One One

larlargege, , multiprmultiproject oject
ororganization ganization has has 250 250 difdifferent ferent
questions!questions!
A A justification justification ofof checklist checklist
models models is is that that they they alloallow w greagreat t
flexibility flexibility in in se-se-
lecting lecting among among manmany y differdifferent ent
types types ofof pr projects ojects and and are are easily easily
used used acracross oss differdiffer--
ent ent divisions divisions and and localocationstions. .
Although Although manmany y projects projects arare e
selected selected using using some some
variavariation tion ofof the the checklist checklist
apprapproach, oach, this this apprapproach oach has has serious
serious shortcomingsshortcomings. .
Major Major shortcomings shortcomings ofof this this
apprapproach oach are are thathat t it it fails fails to to
answanswer er ththe e relarelative tive im-im-
portance portance or or value value ofof a a potential potential
prproject oject to to the the organizaorganization tion and and
fails fails to to allowallow
ffor or comparison comparison with with other other potential
potential prprojectsojects. . Each Each potential potential
prproject oject will will hahave ve a a
difdifferent ferent set set ofof positiv positive e and and
negatinegative ve ansanswerswers. . How How do do yyou ou
compare? compare? RRanking anking

and and prioritizing prioritizing prprojects ojects by by their
their importance importance is is difdifficult, ficult, ifif not
not impossibleimpossible. . This This
apprapproach oach also also lealeaves ves the the door door
open open to to the the potential potential opportunity
opportunity ffor or powpower er
plaplaysys, , politicspolitics, , and and other other ffororms ms
ofof manipula manipulation. tion. TTo o oovercome vercome
these these seriousserious
shortcomings shortcomings experts experts rrecommend
ecommend the the use use ofof a a multi-wmulti-weighted
eighted scoring scoring model model to to
select select prprojectsojects, , which which is is eexamined
xamined next.next.
Multi-WMulti-Weighted eighted Scoring Scoring
ModelsModels A A weighted weighted scoring scoring model
model typically typically uses uses seseveral veral
weighted weighted selection selection criteria criteria to to
eevaluavaluate te project project prproposalsoposals. .
WWeighted eighted scoring scoring models models
will will generallgenerally y include include qualitatiqualitative
ve and/or and/or quantitatiquantitative ve criteria. criteria. Each
Each selection selection crite-crite-
rion rion is is asssigned asssigned a a weight. weight.
ScorScores es are are assigned assigned to to each each
criterion criterion ffor or the the project,project,
based based on on its its importance importance to to the the
prproject oject being being evaluaevaluated. ted. The The
weights weights and and scores scores are are
multiplied multiplied to to get get a a total total wweighted
eighted score score ffor or the the prproject. oject. Using Using
these these multiple multiple
screening screening criteria, criteria, prprojects ojects can can
then then be be compared compared using using the the
wweighted eighted scorescore. . Proj-Proj-

ects ects with with higher higher weighted weighted scorscores
es are are considered considered betterbetter..
Selection Selection criteria criteria need need to to mirror
mirror the the critical critical success success factors factors
ofof an an organizaorganization. tion.
FFor or exampleexample, , 3M 3M set set a a target target
thathat t 25 25 percent percent ofof the the
company’company’s s sales sales wwould ould come come
frfrom om products products fefewer wer than than ffour our
years years old old versus versus the the old old tartarget get
ofof 20 20 percent. percent. Their Their
priority priority system system ffor or prproject oject selection
selection stronglstrongly y reflects reflects this this new new
tartarget. get. On On the the other other
hand, hand, failure failure to to pick pick the the right right
factors factors will will rrender ender the the screening
screening prprocess ocess “useless”“useless” in in
short short orderorder. . See See Snapshot Snapshot frfrom om
Practice: Practice: Crisis Crisis ITIT..
Figure Figure 2.3 2.3 rrepresents epresents a a prproject oject
scorinscoring g matrix matrix using using some some ofof the
the factors factors ffound ound
in in practicepractice. . The The screening screening criteria
criteria selected selected are are shoshown wn acracross oss the
the top top ofof the the mamatrix trix
(e(e.g., .g., stastay y within within core core competencies
competencies . . . . . . RROI OI ofof 18 18 percent percent
plus). plus). ManaManagement gement
weights weights each each criterion criterion (a (a vvalue alue
ofof 0 0 to to a a high high ofof, , saysay, , 3) 3) by by its its
relarelativtive e importance importance
to to the the ororganizationganization’’s s objectives objectives
and and strastrategic tegic plan. plan. Project Project
prproposals oposals are are then then sub-sub-

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