How To Make The Right Project Selection?

Selection of a project is important for the organizational success. There are a lot of things that have to be managed well. A weak selection of the project is followed by its weak implementation and hence a project failure. There are some factors that affect the project and will guide a project to its completion. There are five factors of project constraint that affect any project – scope, time, cost, risk and quality. Organizations encounters many problems, opportunities and the directives.

Here, we explore three factors for selection of projects:

Defining problem areas: The projects are selected due to the problems that are faced by the organization. Then the problems are addressed according to the five factors as stated above. A problem is an undesirable situation that prevents the organization to achieve its goal. A problem can be either current or anticipated, and major problems must be addressed as early as possible. The bigger a problem, the more important is the project.
Identifying opportunities: An opportunity is a chance to improve performance of the organization. Opportunities should be taken at the maximum potential and projects should be selected based upon the opportunities. Under a project management, growing internationally would be lesser opportunity and more likely a problem because of the differences of language, currency and geography. However, it can be a huge opportunity if the differences are eliminated. Social networking can help in connecting to the collective intelligence within the workforce while creating new opportunities for projects on a daily basis.
Directive to project: Directive is a new requirement that is imposed by the management of the organization, government or some other external influence. With the directive, a new project can be selected or redirection of the current one is done.

Therefore, for an organization managing projects is the best solution to address a problem, opportunity and directives. These elements lead in project selection. After establishing the steps in the selection, the success depends on balancing the five factors of project constraint as addressed above.

Moreover, there are alternative methods for selection of projects. They are:

1. Payback period methods: A payback period is the number of years a project will break even on the initial cash investment that is based on the expected cash flows of the project.

How is the payback period of a project computed, for uneven cash flows?

Payback Period = A +	B
	C

In the above formula,
A = last period with a negative cumulative cash flow;
B = absolute value of cumulative cash flow at the end of the period A;
C = total cash flow during the period after A

2. Discounted cash flow methods: There are two major discounted cash flow methods,

i. IRR – Internal Rate of Return, that discounts a stream of future net cash flows.

ii. NPV – Net Present Value, that is the present value of a project’s cash flows less the project’s initial capital outlay.

3. SWOT analysis: Performing a SWOT analysis to evaluate the project proposal is one of the qualitative methods for project selection. Strengths and weaknesses are primarily considered internal, whereas opportunities and threats are considered external. When strengths/opportunities counterbalances weaknesses/threats, exploring the project proposal further will be a better decision for the organization.

We can choose any one of the project selection methods or in combination, depending upon the concerns of the organization.