Project Selection Day

One of the common denominators for all companies is that they have scarce resources. Time, money, and personnel are just some of the things that are often in limited supply. Companies have developed comprehensive cost saving measures and other means of utilizing their assets most efficiently, however many companies fall short when determining what opportunities to pursue, creating waste in the process.

Many companies fall into the trap of trying to be everything to everyone with projects selected based upon intuition and few practices in the decision. What results are higher priority projects being neglected due to lack of capacity. Educated companies are now employing sophisticated project selection criteria in attempts to avoid this.

I work for a construction company who had struggled in this arena when determining what projects to pursue. In the recent past we have made considerable improvement and growth by creating and utilizing a simple tool incorporating selection criteria. Two of the basic groups of criteria that we incorporated fell into two groups: Project Fit and Return on Effort.

Project Fit is more or less based upon strategy. We first developed a list of questions that we could answer in the initial determination phase. Some of the items that were included were quantity of past business with the client, amount of competition, and how the project fit within our core competencies. We formulated an excel spreadsheet that allowed us to generate a numerical score that would depict how well the opportunity fit the business that we are in. We could also compare the score to other opportunities.

We had a similar approach in creating our Return on Effort metric, which is primarily concerned with financial information. Such items as projected revenue and profit are compared with costs of selling and estimating the project. Projects that are more lucrative receive a higher score. The intent here is to eliminate those projects that would consume numerous resources and not provide a large financial benefit. It was interesting to see how this is not always obvious without a detailed analysis. Projects that I would have otherwise thought would be profitable would score low.

This overall process has helped us gain some direction when prioritizing projects. We have had less wasted time, more adherences to strategy, and clearer priorities. However, I believe that we still have some room for improvement. For an example, one shortcoming that I have observed is salesmen manipulating the tool to generate a higher priority project than it would otherwise have.

We are working on trying to further standardize the process, but I would like to see if any of you have had similar experiences with the ambiguity effect on the scoring, and would be able to offer some tips on how to deal with this. I would also like to see if you have any tips on different selection criteria or methods of evaluating our projects?




5 thoughts on “Project Selection Day

  1. I could not agree more. My organization is strapped for resources, particularly in money and personnel. As a small business there have been times where we have not properly utilized personnel and ultimately dropped the ball on “project fit”. Our strategy was not aligned with the use of personnel and this resulted in a failure at times or more strain on other individuals. The “return on effort” has also shed light on the improper placement of individuals in our organization. The financial information mainly dictates that under-utilization of personnel and the inefficiencies that have resulted. We have targeted this miscues and developed a more comprehensive selection process to properly place personnel in projects in which they can succeed.

  2. Although I do not have an answer for you Brad, I can definitely relate to the struggle your facing. On the big strategic projects my company preforms, poor project fit is very common. Big projects in my company are mostly MSF (Market Segment Focus) projects to penetrate the market in an area similar to ours. What often times happens is that we do not have the access to the data, lack of contacts in the industry, and utilization of the wrong personnel. Just recently, after a MSF project resulted in great opportunity in a specific market, our company invested into R&D to pursue the market. Soon after we found that the results were not quite accurate. That was a complete waste of resources.

  3. My company faces similar challenges. In my current job, I am responsible for providing finance support for HQ RDQ&I (Research, Development, Quality and Innovation) organization. The group I support provides assistance to the R&D folks from the BUs who come to the “Center” and ask them for help in (their) product development projects. Because the resources are limited (like everywhere else) and only certain projects can obtain that support, there is a constant prioritization struggle. What makes this issue even more challenging is the fact that, in many cases, decisions need to be made fast, and that our product developers don’t know how to make them. How do you know if working on exchanging potassium chloride with sodium chloride is more important or more profitable than working on red corn color extract?
    After we received our satisfaction survey results and learned about this struggle, our R&D team asked me to put together a series of “Lunch and learn” sessions to educate our junior employees about our financial tools and financial modeling that we (finance) use.
    When I was preparing the materials for my lectures and interviewing a bunch of scientists, I was shocked to learn that so many people (smart people.. many with PHD degrees!) didn’t know what NPV was, didn’t know what the company’s required IRR was (to meet the project hurtle), or that capital isn’t free and comes at a cost. People are smart in different ways and you cannot expect a chemist to know how NPV is calculated, just like you can’t expect a finance professional to know what anthocyanin compound is.
    Our training sessions were a huge success. We educated our scientists and we helped them to validate the profitability of many different projects, and even more importantly – lack of profitability of many of them! The only downfall is that my workload tripled 🙂

  4. I believe the approach you are using is good in most cases. There is one more criterion we consider when it comes to project selection. We evaluate profitability by reviewing both the product itself and the complete product lines. Similar to the Hewlett-Packard approach, we might sell printers at loss but we sell ink and toner cartridges at high margins. Thus, we usually select projects that are profitable at product line level. I am not sure if it can be applied to construction companies but this makes sense to our industry.

  5. Until two years ago, my company didn’t have a formal process to select projects. We would try to work on all the projects that come our way without taking the time to select the right ones that would allow us to close opportunities with minimal investment. At any time we had around 75 R&D projects with only 4 dedicated resources and less than $ 50, 000 R&D budget. To make it worse, we didn’t have a formal scoping process to understand the need for the project, customer’s pain, our value proposition and customer’s application details. We would develop products with the minimal information we get from sales and deliver products to the customer’s like shooting in the dark. Things got out of hand and we went for over a year without delivering any breakthrough new products or closing any new opportunities.
    Finally the company sent a cross functional team for solution selling training and new products rapid innovation training and asked the team to develop a New product development stage gate process and initial scoping process. The scoping process was defined to look at the
    1. Strategy of the organization
    2. Commercial value of the opportunity
    3. Investment need
    4. Customer application details/ Pain
    5. Our value proposition
    And based on that information to decide on the right projects to work on.
    The process only allowed 10 projects to work at any time and for each researcher to be involved with only 3 projects at a time. This was a very successful process and we were able to close several opportunities in a very short amount of time.

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