Chapter 2

ORGANIZATION STRATEGY AND PROJECT SELECTION

Chapter Outline

1. The strategic management process: an overview

Strategic management is the process of assessing what we are and deciding
and implementing what we intend to be and how we are going to get there.
Strategy describes how an organization intends to compete with the resources
available in the existing and perceived future environment. If management is not
on board with the companys strategy, problems may occur.

Ex. SUPERLITE:
PROVIDING THE STRONGEST AND LIGHTEST FRAMES IN
BUGGY RACING TODAY.

If a Project manager was given the responsibility to create the newest

version of buggy frames for the company, and was approached by a
vendor that they will save PMs company thousands of dollars if they went
with this new metal that is a bit heavier and not as strong as what they are
currently using, but is significantly cheaper. If the PM goes for the money
savings, how will that effect the companys overall strategy? It will
undermine it!

A. Four activities of the strategic management process

1. Review and define the organizational mission

The mission identifies what we want to become. It states the scope of
the organization in terms of its product or service. It provides focus for
decision making when shared by management and employees. Mission
statements typically include the organizations philosophy, key
technologies, public image, and contributions to society. Basically, the
mission sets parameters for developing objectives.

2. Set long-range goals and objectives

Objectives answer in detail where the company is headed, and when
it is going to get there. It translates the organizations mission into
specific, concrete, measurable terms. It typically covers markets,
products, innovation, productivity, quality, finance, profitability,
employees, and consumers. Basically, long range goals and objectives
drive the projects.

2-1
 Ex. Goal: To provide the consumer with the highest quality prints at a
fraction of the price.

3. Analyze and formulate strategies to reach objectives

Formulating strategy answers the question of what needs to be done to
reach the objective, and determining/evaluating/selecting the best
alternative to get there. First step is an analysis of who are the
customers and what are their needs. Second step is to determine what
are the internal strengths and weaknesses of the company, such as
technology, product quality, management talent, etc. Third step is to
understand the opportunities and threats that may be a factor in reaching
the objective.

Example: Opportunity: increase demand, emerging markets, and

demographics.
Threat: slowing economy, exchange rates, and government
regulations.

S strengths
W weaknesses
O opportunities
T - threats

4. Implement strategies through projects

Implementation answers the question of how the strategies will be
realized, given the available resources. First, is completing tasks. This
requires the allocation of resources such as funds, people, management
talents, technical skills and equipment. Second, is implementing
organizational authority, responsibility, and performance. Third, is
planning and control. Fourth, is motivating project contributors. Fifth, is
prioritizing projects. Without implementation of these items, success is
very difficult.

2. Scenario Planning: A Supplement to Traditional Strategic Planning

A. Overview: In todays world, the rate of change is accelerating. How might

the future unfold? What is the risk of being too late to adapt? How do we plan
for the future, when we do not know what the future holds?

B. Scenario Planning: Is a risk contingency plan needed to prepare for the

accelerating changes and uncertainty in the world today.

2-2
 C. Scenario Planning Process: Scenarios are stories of how we believe things
could play out in the long run. Scenario Planning is the process of thinking
about possible future events that have a high potential of disrupting how you
do business and what strategies you will use to counter-act the event.

D. Assessing your Core Business: First step is to clarify and agree on what
product or service the organization provides to society. How fast is the
industry changing? What are the driving environmental forces causing the
industry to change?

E. Potential Scenarios and Impact: This is where brainstorming begins in order

to determine the potential global forces that could have a substantial impact on
how your organization does business. Ex. Will the green movement affect the
way you do business? If you are currently in the oil business, and you know
your wells will eventually be tapped out, should you start looking into other
forms of alternative energy sources?

F. Triggers: Are early identifying indicators that tell you the event is
approaching. What are the events that must materialize in order to make you
to take action.

3. The need for an effective project portfolio management system

Problem 1: The Implementation gap

This refers to the lack of understanding and consensus of organization
strategy among the project contributors. Symptoms of organizations
struggling with strategy disconnect and unclear priorities are:
A) Conflicts occur, causing lack of trust.
B) Frequent meetings required to re-establish priorities.
C) Multiple Projects: Team players are confused about which
projects are important.
D) Resources are not adequate.

Problem 2: Organizational politics

Politics exist in every organization and can have a significant influence on
which projects receive funding and high priority. Project selection may
not always be based on facts and sound reasoning, but rather on
persuasiveness and the power of the people advocating the project.

Sacred Cow term often used to denote a project that a powerful, high-
ranking official is advocatingThe CEOs pet ideaThe VPs new
baby.

2-3
 Problem 3: Resource conflicts and multitasking
In multi-project environments there are problems with project
interdependency and the need to share resources. This is where
competition among managers become an issue, because all project
managers want the best people for their project. So when a company is
doing well, it takes on more projects, thus creating problems with the
sharing resources and possibly disrupting the overall schedule.
Ultimately, the sharing of resources leads to Multitasking. This is where
people are working on several projects concurrently, which inevitably
leads to confusion and inefficient use of scarce organizational resources.

4. A portfolio management system

The aim of portfolio management is to ensure that projects are aligned with
strategic goals and prioritized appropriately.

Benefits of Project Portfolio Management:

Builds discipline into project selection process.
Links project selection to strategic metrics.
Prioritizes project proposals across a common criteria, rather than on politics.
Balances risk across all projects.
Justifies killing projects that do not support organization strategy
Improves communication and supports agreement on all project goals.

A. Classification of the project

Many companies find they have three different kinds of projects in their
portfolio: Compliance & emergency (must do), Operational, & Strategic.
Compliance: Projects that need to meet regulatory conditions to operate in a
specific region.
Emergency: Rebuilding a factory after a fire.
Operational: Projects needed to support current operations. Examples are
those designed to improve efficiency, reduce costs, and improve performance.
Strategic: Projects that support the companys long-term mission. These are
projects that increase revenue or market share.

B. Selection criteria
Typical criteria used in selecting projects are either Financial or Non-Financial

C. Financial models
This is based on estimates of future cash flows. Which project will yield the
company the best or better return. This has proven to be dangerous sometimes
because it is really hard to measure all the factors involved in each project.

D. Non-financial criteria

2-4
 Although financial return is important, many companies are may go beyond
this and consider supporting projects that do not have high profit margins, but
have more strategic significance to the company.

* To capture the larger market share.

* To make it difficult for competitors to enter the market.
* To develop core technology to be used in next-generation products.
* To reduce dependency on unreliable suppliers.
* To prevent government regulation and intervention.
* To restore corporate image
* To enhance brand recognition.
* To support community development.

5. Applying a selection model

A. Sources and solicitation of project proposals
B. Ranking proposals and selection of projects
6. Managing the portfolio System
A. Balancing the portfolio for risks and types of projects
7. Summary

2-5