Project Selection – Process, Criteria, and Other Factors

     Committing resources to project execution is a critical responsibility for any organization or individual.  Executing poor-performing projects can be disastrous for sponsors and organizations; financial distress, reputational damage, and sinking morale, among other issues, can result.  Likewise, rejecting promising projects can limit an organization’s success by any conceivable measure.
     The risks inherent in project selection compels sponsors and managers to follow an objective and methodical process to make decisions.  Doing so leads to project selection decisions that are consistent, comparable, and effective.  Review and evaluation of these decisions and their outcomes also becomes straightforward.

     Project selection is a context-specific example of decision-making.  However, its complexity, ubiquity, and criticality warrant a focused treatment separate from the Making Decisions series.
     An effective selection process includes project justification. Adjacent to this process is the prioritization of selected projects and termination decisions regarding ongoing projects, though these topics are often considered in isolation, if at all.  Selection, prioritization, execution, and termination are elements of project portfolio management; successful organizations conduct these activities in concert.
 
Project Selection Process
     An effective project selection process typically proceeds in three phases:  Initiation, Configuration, and Analysis.  Each phase and the steps that comprise them are described in this section.

Initiation
     The initiation phase of project selection is exploratory in nature, where members of the organization consider possible projects.  (It should not be confused with initiating in project management, where project execution is commenced.)  The initiation phase of project selection consists of two steps:  Generate Ideas, and Screen.

Generate Ideas.  The organization brainstorms potential projects, compiling a list for consideration, sometimes called a “project register.”  Project ideas can originate from a multitude of sources; most will germinate within the organization, but suggestions from external partners should also be considered.  Potential sources of project ideas include:

• Product Engineering
• Operations Management
• Quality Management
• Facility Management
• Production personnel
• Sales & Marketing
• Customers
• Suppliers
• Community members

     As suggested by the diversity of sources of project ideas, the objectives of potential projects can vary widely.  General categories of potential project objectives include:

• technological innovation
• new product introduction
• product enhancement (e.g. new feature)
• increased productivity
• cost reduction
• quality improvement
• sustainability, reduced environmental impact
• increased customer satisfaction
• warranty claim reduction
• Good Will, “positive press,” or community standing
• legal or regulatory compliance

Specific objectives that fall under these generic headings are too numerous to contemplate.  The list is provided only to spur ideation and is not comprehensive.

Screen.  Once a list of potential projects has been generated, a preliminary evaluation, or screening, can be conducted.  Another term used for this step is feasibility study or, in the vernacular, “sanity check.”  The purpose of screening is to eliminate from consideration those projects that “obviously” cannot be pursued at the present time.  This assessment is based, in large part, on preliminary estimates of resource requirements or expected results.  Screening criteria may include:

• budget (i.e. funding required)
• staffing (number or expertise) required
• schedule (i.e. time required)
• pending obsolescence of product, process, facility, or equipment
• strategy alignment
• regulatory requirements

     Project ideas that fail to pass the screening stage may remain on the project register, or backlog, to be revisited when conditions are more favorable.  Those that are deemed too fanciful, blatantly self-serving, or politically motivated may be stricken from the register to conserve resources that future review would consume and maintain a realistic and professional project register.
 
Configuration
     The configuration phase of project selection is where the organization defines how projects will be evaluated, compared, and selected or rejected.  It consists of three steps:  Choose Criteria, Choose Selection Method, and Evaluate Project Proposals.

Choose Criteria.  Selection criteria can be chosen from many options; they must align with the nature of the project and its objectives for the selection process to be effective.  Criteria selection will discussed further in the Project Selection Criteria section below.

Choose Selection Method.  Selection method options are also numerous.  Simple or small-scale projects may be sufficiently evaluated with a straightforward cost/benefit analysis, while larger, complex projects may require more sophisticated evaluations with input from a larger number of people.
     Some group decision-making techniques are discussed in Making Decisions – Vol. V.  The Analytic Hierarchy Process (AHP) (Making Decisions – Vol. III) and the Rational Model (Making Decisions – Vol. II) are also presented in previous posts.  A hybrid approach could also be used.  For example, the Delphi Method (see Making Decisions – Vol. V) could be used to determine the criteria and weighting factors to be used in AHP.
     The organization is free to choose or create a project selection method.  Whatever the choice, it is critical that the selection method be well-defined, objective, “tamper-resistant,” and clearly communicated to minimize the possibility – or suspicion – of bias or “gaming.”

Evaluate Project Proposals.  In this step, values are determined for each of the selection criteria for each project under consideration.  These are often presented in monetary terms to simplify investment justification, but need not be.  Other values that can be compared before and after project execution or between projects are equally valid.  Examples include first time yield (FTY), transactions per hour, equipment utilization, and so on.  These values will likely be translated to monetary terms at some point, but are perfectly acceptable for initial evaluations and comparisons.
 
Analysis
     The project selection process concludes with the analysis phase, where decisions are finalized.  This phase is completed in three steps:  Analyze Proposals, Analyze Risk, and Update Project Portfolio.

Analyze Proposals.  Using the selection method chosen, score, compare, or otherwise analyze each project proposal according to the criteria values determined above.  If a clear favorite is not identified, the selection method may need to be refined.  If sufficient capacity is available, refinement may be eschewed and two “tied” projects selected for execution.

Analyze Risk.  Any risks not fully accounted for in the chosen selection criteria and method should be considered before finalizing selection decisions.  Also, the risk of foregoing projects that were not selected – particularly if rejected by a slim margin – should also be considered.  Overriding selections made by the defined method must be justified and approved at a high level.  Justifications for overriding a selection decision may include:

• Actions by competitors and the resulting market position each may occupy.
• Confidence in estimates or probability of success.
• Potential damage caused by project failure (financial, reputational, etc.).
• The organization’s resistance to change.
• The influence of uncontrollable factors.

Update Project Portfolio.  When the final selections have been made, the organization’s project portfolio should be updated.  The project(s) chosen for immediate execution are added to “active projects,” while those postponed are recorded in the project backlog.  The active projects must be prioritized to streamline resource allocation decisions; this is discussed further in the Other Project Selection Factors section below.
 
Project Selection Criteria
     Evaluation and selection criteria are chosen in the Configuration phase of the project selection process.  An organization can choose as many, or as few, criteria as are relevant to the projects it expects to execute.  Criteria based on unconventional metrics could also be used, so long as they are objective and can be utilized consistently.  All criteria, whether commonplace or unique, should be reviewed in light of project performance and results obtained.
     Potential selection criteria are numerous; many can be grouped in broad categories to organize information and facilitate configuration of the selection process.  Common categories and criteria include:

• Financial Criteria
  • Return on Investment (ROI)
  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)
  • Economic Value Added (EVA)
  • Loss Function
• Operational Criteria
  • First Time Yield (FTY) or other quality metric
  • Equipment Downtime/Availability
  • Productivity
• Resource Criteria
  • budget (i.e. funding required)
  • schedule (i.e. time required)
  • staffing required
• Sustainability/Environmental Criteria
  • raw material usage
  • emissions, waste generated
  • energy consumption
• Experiential Criteria
  • new employee onboarding
  • recent graduate experience
  • new project manager experience
  • knowledge to be gained (technology, process, equipment, software, etc.)
• Relational Criteria
  • employee morale, turnover
  • Customer Satisfaction (e.g. Net Promoter Score [NPS])
• Replicability (potential to leverage results in other contexts)
• Good Will generation

      To simplify the decision model, several of the example criteria could be consolidated in financial metrics.  That is, operational, environmental, and other criteria could be defined in monetary terms and included in financial calculations.  Social pressure may preclude this practice, however; the significance of some criteria transcend financial metrics.  Also, choosing among projects with similar financial expectations is facilitated by the discrimination afforded by independent criteria.
 
Other Project Selection Factors
     A project selection process should be as objective as possible to achieve the most favorable results with the greatest efficiency.  However, this does not preclude the need for sound judgment and deep insight when making portfolio decisions, including project prioritization.
     The first level of prioritization is achieved via the project selection process described above.  High-priority projects are added to the “active” list, while others are relegated to the backlog.  Within the list of active projects, another level of prioritization must be defined.  The urgency of a new project may cause it to be prioritized above one already in progress.
     Limited resources may require the ongoing project to be placed on hold.  Review of project performance and updated forecasts may even result in project termination, freeing resources to support other projects in the portfolio.  The decision to terminate a project or place it on hold should not be made helter-skelter, however.  Incomplete projects incur costs without delivering benefits; restarting a stalled project can require more effort than it would have previously required to complete it.
     Other perils also lurk within portfolio management and project selection processes.  Self-serving, self-justifying, politically-motivated, or otherwise biased or unethical managers can influence decisions, leading to a suboptimal (to be charitable) project portfolio, if they are left to operate without “guard rails” (see Making Decisions – Vol. VII:  Perils and Predicaments).
     Undue influence, bias, inexperience, and other decision-altering factors and the negative consequences they breed can be minimized by operating according to a portfolio management standard.  An organization can provide the guard rails needed by adding requirements that are specific to project selection to its decision-making standard.  An outline of this standard is provided in the section titled “How should a decision-making standard be structured?” in Making Decisions – Vol. IV.  Additional guidance on portfolio management can be obtained from the Project Management Institute (PMI).
 
     Competent project selection requires multiple points of view – short- and long-term, financial and nonfinancial.  An organization that constructs a portfolio in which each project augments and amplifies the benefits of previous projects can expect better performance than competitors that use a less analytical project selection process.
 
     For additional guidance or assistance with project selection or other Operations challenges, feel free to leave a comment, contact JayWink Solutions, or schedule an appointment.
 
References
[Link] “Project selection and termination--how executives get trapped.”  W.G. Meyer; Project Management Institute, 2012.
[Link] “Knowledge Contribution as a Factor in Project Selection.”  Shuang Geng, et al; Project Management Journal, February/March 2018.
[Link] “The ‘Everything is Important’ paradox:  9 practical methods for how to prioritize your work (and time).”  Jory MacKay; Rescue Time, May 5, 2020.
[Link] “Taguchi loss function.”  Six Sigma Ninja, November, 11, 2019.
[Link] “Everything You Need to Know about Project Selection.”  Kate Eby; Smartsheet, August 16, 2021.
[Link] “Use the Value Index to Prioritize Project Efforts.”  Carl Berardinelli; iSixSigma.
[Link] “Selecting the Best Business Process Improvement Efforts.”  J. DeLayne Stroud; iSixSigma.
[Link] “Use Point System for Better Six Sigma Project Selection.”  Drew Peregrim; iSixSigma.
[Link] “Project Selection: Don't Pan for Gold in Your Hot Tub!”  Gary A. Gack; iSixSigma.
[Link] “Black Belts Should Create Balanced Project Portfolios.”  William Rushing; iSixSigma.
[Link] “Select Projects Using Evaluation and Decision Tools.”  Rupesh Lochan; iSixSigma.
[Link] “PMP : Quantitative Approach to Selecting the Right Project.”  Abhishek Maurya; Whizlabs, March 20, 2017.
[Link] “A Guide to Project Prioritization and Selection.”  EcoSys Team; October 2, 2018.
[Link] “ISO 13053: Quantitative Methods in Process Improvement – Six Sigma – Part 1:  DMAIC Methodology.”  ISO, 2011.
[Link] Juran’s Quality Handbook.  Joseph M. Juran et al; McGraw-Hill.
[Link] “Project Prioritization Troubles? Brainstorm New Metrics.”  Barbara Carkenord; RMC Learning Solutions, September 8, 2021.
[Link] “Using Taguchi's Loss Function to Estimate Project Benefits.”  Michael Ohler; iSixSigma.
[Link] “The Right Decision.”  Douglas P. Mader; Quality Progress, November 2009.
[Link] “Trade-off Analysis in Decision Making.”  APQC, 2009.
[Link] “Building Leadership Capital – Action Learning Project Workbook.”  Deakin University, 2013.
 
Jody W. Phelps, MSc, PMP®, MBA
Principal Consultant
JayWink Solutions, LLC
jody@jaywink.com