Editor’s note: This article was originally published April 10, 2003.

This two-part series kicked off with a discussion of why effective project management starts with selecting and prioritizing projects that support your organization’s mission and strategy.

Project managers can choose from a relatively large number of project priority and selection models. Picking a selection model is highly dependent on certain organizational attributes such as industry, risk aversion level, technology, competition, management style, and markets. Selection models should encompass multiple criteria such as profitability, researching new technology, public image, core competencies, and strategic fit.

The selection process

It is a rare case when project managers “must” select a project. If a project falls in the “must” category, project managers sometimes ignore all other selection criteria, putting the project at risk. The question is: When does a project fall into the “must” category? The answer is: When the majority of the project stakeholders agree that the project is crucial and needs to be implemented. There is no other choice but to implement the project in order to ensure the continuity of the organization. For all remaining projects, use multiple selection criteria, which link the project to the organizational strategy.

Proposals screening

Proposals for projects come from internal and external sources. In most situations, organizations have more proposals on hand than they can pursue. These proposals have to go through a screening process (see Figure A).
Figure A

Click image to enlarge. 

The prerequisites for implementing an effective screening process are:

  • Publishing of the selection criteria so that self-evaluations are carried out by sponsors before they are submitted to the priority team.
  • Publishing guidelines and templates for developing a business case, which will facilitate the evaluation process by the priority team.

The priority team

In order to implement an effective project priority and selection process, you need to clarify the roles and responsibilities of the priority team. The project priority team is responsible for:

  • Evaluating project proposals on the basis of the selection criteria.
  • Accepting or rejecting proposals.
  • Publishing the score of each proposal and ensuring the process is open and free.
  • Balancing the portfolio of projects for the organization.
  • Evaluating the progress of the projects in the portfolio over time.
  • Reassessing organizational goals and priorities if conditions change.

Selection criteria

You need to base the project selection criteria on your organization’s critical success factors and strategic goals. Failure to select the right factors will render the priority and selection process useless. Here are examples of selection criteria used by one of my customers:

  • Alignment with core competencies
  • Alignment with strategic goals
  • Internal rate of return in excess of (a certain number, say 15 percent)
  • Improvement of customer service
  • Urgency

Management weights each criterion by its relative contribution and importance to the organization’s goals and strategic plan. The project priority team evaluates each project proposal by its relative contribution or benefit to the selection criteria. The priority team assigns a spectrum of values for each criterion ranging from low (0) to high (10). This value represents the proposal’s fit to the specific criterion.

Table A shows a project selection matrix. For example, “Proposal 1” appears to fit well with the strategic goals of the organization since the priority team gave it a score of seven. However, “Proposal 1” does little to support core competencies, since the priority team gave it a score of two. The last step in this model is to apply management weights to each criterion by importance, using a spectrum of values ranging from low (1) to high (3). For example, “improve customer service” has a weight of three while urgency has a weight of 2. Note that urgency is different from the “must” category discussed above. Although Proposal 4 appears to have some urgency, it is not classified as a “must” project. That is why it is being analyzed with other proposals. In rare cases, such as two projects having the same score, the priority team may pick the project that has less demand on organizational resources.

Assessing results

The project priority system selects which projects you need to pursue based on their support to the organizational strategy. In addition, you need a model that assesses the long-term effectiveness of the project priority system. The assessment model focuses on the performance in these main areas:

  • Customer
  • Internal
  • Innovation
  • Knowledge transfer
  • Financial measures

You need to collect metrics in order to analyze and assess the effectiveness of the project priority system. The following list shows some typical metrics that are used to assess these main areas:

  • Customer
  • Sales compared to industry norms
  • Percentage of on-time/within budget/according to specifications projects
  • Internal
  • Time-to-market for a new product or service
  • Reduction in design time
  • Innovation
  • Sales generated from new products
  • Knowledge transfer
  • Savings generated from improvements in project management processes
  • Financial measures
  • Return on investment
  • Internal rate of return
  • Cash flow analysis

You need to measure these metrics over a period of time and compare them with industry norms — if they are available — in order to have a fair view of the company performance.

Implementing a centralized project priority and selection system provides a comprehensive approach to aligning your projects with organizational strategy. The system enables you to manage the project portfolio effectively by controlling the use of scarce resources and balancing risks. Remember, you need to evaluate all project proposals using the same selection criteria. You need to enforce the project priority system.

Furthermore, maintaining this system so that it remains open and aboveboard is crucial in sustaining its integrity. The priority team needs to communicate which projects are approved project priorities or ranks, status of in-progress projects, and changes in project selection criteria. Having such a system will enable your organization to integrate its goals and strategy with a portfolio of projects selected through a proactive process.

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