Defining the concepts, theories, and approaches of project management.

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Assignment Workload:

This Assignment comprises a Case Study and Discussion Questions.

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Assignment Purposes/Learning Outcomes:

After completion of Assignment-1 students will be able to understand the

Defining the concepts, theories, and approaches of project management. (L.O-1.1)

Estimate the project budget and cost control. (L.O-2.2)

Analyze to work effectively and efficiently as a team member for project-related cases.

What impact will artificial intelligence (AI) have on the field of project management? (2 Marks) Refer Chapter-2

How are projects linked to the strategic plan? (2 Marks) Refer Chapter-2

(L.O-3.1)

Assignment-1

Assignment Case Study Question: ( Marks 6)

Please read Case-2.1 “Hector Gaming Company.” from Chapter 2 “Organization Strategy and Project Selection” given in your textbook – Project Management: The Managerial Process 8th edition by Larson and Gray page no: 61 also refer to specific concepts you have learned from the chapter to support your answers. Answer the following questions with a 500-word limit.

Peters has hired you as a consultant. She has suggested the following format for your consulting contract. You are free to use another format if it will improve the effectiveness of the consulting engagement.

 

Provide a detailed action plan that attacks the problem. Be specific and provide examples that relate to HGC.

 

1. What is our major problem? (2 Marks)

2. Identify some symptoms of the problem. (2 Marks)

3. What is the major cause of the problem? (2 Marks)

Discussion Question: (4 Marks)

Requirements: Answer the following questions with a 500-word limit.

2-12-22-32-42-52-62-72-82-9page 28CHAPTERTWO2Organization Strategy andProject SelectionLEARNING OBJECTIVESAfter reading this chapter you should be able to:Explain why it is important for project managers to understand theirorganization’s strategy.Identify the significant role projects contribute to the strategic direction of theorganization.Understand the need for a project priority system.Distinguish among three kinds of projects.Describe how the phase gate model applies to project management.Apply financial and nonfinancial criteria to assess the value of projects.Understand how multi-criteria models can be used to select projects.Apply an objective priority system to project selection.Understand the need to manage the project portfolio.

2.12.22.32.42.52.62.72.8page 29OUTLINEWhy Project Managers Need to Understand StrategyThe Strategic Management Process: An OverviewThe Need for a Project Priority SystemProject ClassificationPhase Gate ModelSelection CriteriaApplying a Selection ModelManaging the Portfolio SystemSummary A vision without a strategy remains an illusion.

page 30—Lee Bolman, professor of leadership, University of Missouri–Kansas City.Strategy is fundamentally deciding how the organization will compete.Organizations use projects to convert strategy into new products, services,and processes needed for success. For example, Intel’s major strategy is oneof differentiation. Intel relies on projects to create specialty chips forproducts other than computers, such as autos, security, cell phones, and aircontrols. Another strategy is to reduce project cycle times. Procter andGamble, NEC, General Electric, and AT&T have reduced their cycle timesby 20–50 percent. Toyota and other auto manufacturers are now able todesign and develop new cars in two to three years instead of five to seven.Projects and project management play the key role in supporting strategicgoals. It is vital for project managers to think and act strategically.Aligning projects with the strategic goals of the organization is crucialfor business success. Today’s economic climate is unprecedented by rapidchanges in technology, global competition, and financialuncertainty. These conditions make strategy/project alignmenteven more essential for success.The larger and more diverse an organization, the more difficult it is tocreate and maintain a strong link between strategy and projects. How can anorganization ensure this link? The answer requires integration of projectswith the strategic plan. Integration assumes the existence of a strategic planand a process for prioritizing projects by their contribution to the plan. Akey factor to ensure the success of integrating the plan with projects is anopen and transparent selection process for all participants to review.This chapter presents an overview of the importance of strategicplanning and the process for developing a strategic plan. Typical problemsencountered when strategy and projects are not linked are noted. A genericmethodology that ensures integration by creating strong linkages of projectselection and priority to the strategic plan is then discussed. The intendedoutcomes are clear organization focus, best use of scarce organizationresources (people, equipment, capital), and improved communication acrossprojects and departments.

2.1 Why Project Managers Need toUnderstand StrategyLO 2-1Explain why it is important for project managers to understand their organization’sstrategy.Project management historically has been preoccupied solely with theplanning and execution of projects. Strategy was considered to be under thepurview of senior management. This is old-school thinking. New-schoolthinking recognizes that project management is at the apex of strategy andoperations. Shenhar speaks to this issue when he states, “It is time toexpand the traditional role of the project manager from an operational to amore strategic perspective. In the modern evolving organization, projectmanagers will be focused on business aspects, and their role will expandfrom getting the job done to achieving the business results and winning inthe marketplace.”1There are two main reasons project managers need to understand theirorganization’s mission and strategy. The first reason is so they can makeappropriate decisions and adjustments. For example, how a project managerwould respond to a suggestion to modify the design of a product to enhanceperformance will vary depending upon whether his company strives to be aproduct leader through innovation or to achieve operational excellencethrough low-cost solutions. Similarly, how a project manager wouldrespond to delays may vary depending upon strategic concerns. A projectmanager will authorize overtime if her firm places a premium on getting tothe market first. Another project manager will accept the delay if speed isnot essential.The second reason project managers need to understand theirorganization’s strategy is so they can be effective project advocates. Projectmanagers have to be able to demonstrate to senior management how theirproject contributes to their firm’s mission in order to garner their continuedsupport. Project managers need to be able to explain to stakeholders why

page 31certain project objectives and priorities are critical in order to secure buy-inon contentious trade-off decisions. Finally, project managers need toexplain why the project is important to motivate and empower the projectteam (Brown, Hyer, & Ettenson, 2013).For these reasons project managers will find it valuable to have a keenunderstanding of strategic management and project selection processes,which are discussed next.2.2 The Strategic Management Process: AnOverviewLO 2-2Identify the significant role projects contribute to the strategic direction of theorganization.Strategic management is the process of assessing “what we are” anddeciding and implementing “what we intend to be and how we are going toget there.” Strategy describes how an organization intends to compete withthe resources available in the existing and perceived future environment.Two major dimensions of strategic management are responding to changesin the external environment and allocating the firm’s scarce resources toimprove its competitive position. Constant scanning of the externalenvironment for changes is a major requirement for survival in a dynamiccompetitive environment. The second dimension is the internal responses tonew action programs aimed at enhancing the competitive position of thefirm. The nature of the responses depends on the type of business,environment volatility, competition, and the organizational culture.Strategic management provides the theme and focus of the futuredirection of the organization. It supports consistency of action at every levelof the organization. It encourages integration because effort and resourcesare committed to common goals and strategies. See Snapshot from Practice

2.1: Does IBM’s Watson’s Jeopardy Project Represent a Change inStrategy? Strategic management is a continuous, iterative process aimed atdeveloping an integrated and coordinated long-term plan of action. Itpositions the organization to meet the needs and requirements of itscustomers for the long term. With the long-term position identified,objectives are set, and strategies are developed to achieve objectives andthen translated into actions by implementing projects.Strategy can decide the survival of an organization. Most organizationsare successful in formulating strategies for the course(s) they should pursue.However, the problem in many organizations is implementing strategies—that is, making them happen. Integration of strategy formulation andimplementation often does not exist.The components of strategic management are closely linked, and all aredirected toward the future success of the organization. Strategicmanagement requires strong links among mission, goals, objectives,strategy, and implementation. The mission gives the general purpose of theorganization. Goals give global targets within the mission. Objectives givespecific targets to goals. Objectives give rise to the formulation of strategiesto reach objectives. Finally, strategies require actions and tasks to beimplemented. In most cases the actions to be taken represent projects.Figure 2.1 shows a schematic of the strategic management process andmajor activities required.FIGURE 2.1 Strategic Management Process

page 32Four Activities of the Strategic Management ProcessThe typical sequence of activities of the strategic management process isoutlined here; a description of each activity then follows.1. Review and define the organizational mission.2. Analyze and formulate strategies.3. Set objectives to achieve strategies.4. Implement strategies through projects.

SNAPSHOT FROM PRACTICE 2.1Does IBM’s Watson’s Jeopardy Project Represent aChange in Strategy?*IBM’s investment in artificial intelligence paid off. In February 2010, millionsof people were glued to their television sets to watch IBM’s Watsonoutclass two former champion contestants on the Jeopardy quiz show.Watson performed at human expert levels in terms of precision,confidence, and speed during the show.Does Watson represent a new strategic direction for IBM? Not really. The Watsonproject is simply a manifestation of the move from computer hardware to a servicestrategy over a decade ago.WATSON PROJECT DESCRIPTIONArtificial intelligence has advanced significantly in recent years. Watson goes beyondIBM’s chess-playing supercomputer of the late 1990s. Chess is finite, logical, andreduced easily to mathematics. Watson’s work is ill-defined and involves dealing withabstraction and the circumstantial nature of language. Since Watson’s system canunderstand natural language, it can extend the way people interact with computers.The IBM Watson project took three intense years of research and development by acore team of about 20. Eight university teams working on specific challenge areasaugmented these researchers.Watson depends on over 200 million pages of structured and unstructured data and aprogram capable of running trillions of operations per second. With this informationbackup, it attacks a Jeopardy question by parsing the question into small pieces. Withthe question parsed, the program then searches for relevant data. Using hundreds ofdecision rules, the program generates possible answers. These answers are assigned aconfidence score to decide if Watson should risk offering an answer and how much tobet.WHAT’S NEXT?Now that the hype is over, IBM is pursuing their service strategy and applying theknowledge gained from the Watson project to real business applications. Watson’sartificial intelligence design is flexible and suggests a wide variety of opportunities inindustries such as finance, medicine, law enforcement, and defense. Further extensionsto handheld mobile applications that tap into Watson’s servers also hold great potential.IBM has zeroed in on providing healthcare solutions and has begun design of such aprogram.

page 33SeanGallup/Getty ImagesTo create a “doctor’s consultant” program would likely follow a design platform similarto Watson’s. For example, it would be able toData mine current medical documents to build a knowledge base.Integrate individual patient information.Use the system’s complex analytics to select relevant data.Use decision rules to provide physicians with diagnostic options.Rank options, with confidence levels for each option.Creating a doctor’s consultant solution will not replace doctors. Although the systemholds tremendous potential, it is humanmade and depends on the database, dataanalytics, and decision rules to select options. Given the doctor’s consultant input, atrained doctor makes the final patient diagnosis to supplement physical examination andexperience.The Watson project provides IBM with a flexible component to continue their decade-old strategy, moving IBM from computer hardware to service products.*D. Ferrucci, E. Brown, J. Chu-Carroll, J. Fan, D. Gondek, A. Kaylanp, A. Lally, J.Murdock, E. Nyborg, J. Prager, N. Schaefer, and C. Wetty, “Building Watson,” AIMagazine, Fall 2010, pp. 59–79.Review and Define the Organizational MissionThe mission identifies “what we want to become,” or the raison d’être.Mission statements identify the scope of the organization in terms of itsproduct or service. A written mission statement provides focus for decisionmaking when shared by organizational managers and employees. Everyonein the organization should be keenly aware of the organization’s mission.For example, at one large consulting firm, partners who fail to recite themission statement on demand are required to buy lunch. The mission

page 34statement communicates and identifies the purpose of the organization to allstakeholders. Mission statements can be used for evaluating organizationperformance.Traditional components found in mission statements are major productsand services, target customers and markets, and geographical domain. Inaddition, statements frequently include organizational philosophy, keytechnologies, public image, and contribution to society. Including suchfactors in mission statements relates directly to business success.Mission statements change infrequently. However, when the nature ofthe business changes or shifts, revised mission and strategy statements maybe required.More specific mission statements tend to give better results because of atighter focus. Mission statements decrease the chance of false directions bystakeholders. For example, compare the phrasing of the following missionstatements:Provide hospital design services.Provide data mining and analysis services.Provide information technology services.Provide high-value products to our customer.Clearly the first two statements leave less chance for misinterpretation thanthe others. A rule-of-thumb test for a mission statement is that, if thestatement can be anybody’s mission statement, it will not provide theguidance and focus intended. The mission sets the parameters fordeveloping objectives.Analyze and Formulate StrategiesFormulating strategy answers the question of what needs to be done toreach objectives. Strategy formulation includes determining and evaluatingalternatives that support the organization’s objectives and selecting the bestalternative. The first step is a realistic evaluation of the past and currentposition of the enterprise. This step typically includes an analysis of “whoare the customers” and “what are their needs as they (the customers) seethem.”

page 35The next step is an assessment of the internal and externalenvironments. What are the internal strengths and weaknesses of theenterprise? Examples of internal strengths or weaknesses are corecompetencies, such as technology, product quality, management talent, lowdebt, and dealer networks. Managers can alter internal strengths andweaknesses. Opportunities and threats usually represent external forces forchange such as technology, industry structure, and competition.Competitive benchmarking tools are sometimes used to assess current andfuture directions. Opportunities and threats are the flip sides of each other.That is, a threat can be perceived as an opportunity, or vice versa. Examplesof perceived external threats are a slowing of the economy, a maturing lifecycle, exchange rates, and government regulation. Typical opportunities areincreasing demand, emerging markets, and demographics. Managers orindividual firms have limited opportunities to influence such externalenvironmental factors; however, notable exceptions have been newtechnologies such as Apple using the iPod to create a market to sell music.The keys are to attempt to forecast fundamental industry changes and stayin a proactive mode rather than a reactive one. This assessment of theexternal and internal environments is known as the SWOT analysis(strengths, weaknesses, opportunities, and threats).From this analysis, critical issues and strategic alternatives areidentified. Critical analysis of the strategies includes asking questions: Doesthe strategy take advantage of our core competencies? Does the strategyexploit our competitive advantage? Does the strategy maximize meetingcustomers’ needs? Does the strategy fit within our acceptable risk range?These strategic alternatives are winnowed down to a critical few thatsupport the basic mission.Strategy formulation ends with cascading objectives or projectsassigned to lower divisions, departments, or individuals. Formulatingstrategy might range around 20 percent of management’s effort, whiledetermining how strategy will be implemented might consume 80 percent.Set Objectives to Achieve StrategiesObjectives translate the organization strategy into specific, concrete,measurable terms. Organizational objectives set targets for all levels of the

organization. Objectives pinpoint the direction managers believe theorganization should move toward. Objectives answer in detail where a firmis headed and when it is going to get there. Typically objectives for theorganization cover markets, products, innovation, productivity, quality,finance, profitability, employees, and consumers. In every case, objectivesshould be as operational as possible. That is, objectives should include atime frame, be measurable, be an identifiable state, and be realistic. Doran(1981) created the memory device shown in Exhibit 2.1, which is usefulwhen writing objectives.EXHIBIT 2.1 Characteristics of Objectives S Specific Be specific in targeting an objective M Measurable Establish a measurable indicator(s) of progress A Assignable Make the objective assignable to one person for completion R Realistic State what can realistically be done with available resources T Time related State when the objective can be achieved, that is, duration Each level below the organizational objectives should support thehigher-level objectives in more detail; this is frequently called cascading ofobjectives. For example, if a firm making leather luggage sets an objectiveof achieving a 40 percent increase in sales through a research anddevelopment strategy, this charge is passed to the Marketing, Production,and R&D Departments. The R&D Department accepts the firm’s strategy astheir objective, and their strategy becomes the design and development of anew “pull-type luggage with hidden, retractable wheels.” At this point theobjective becomes a project to be implemented—to develop the retractable-wheel luggage for market within six months within a budget of $200,000.In summary, organizational objectives drive projects.Implement Strategies through ProjectsImplementation answers the question of how strategies will be realized,given available resources. The conceptual framework for strategyimplementation lacks the structure and discipline found in strategyformulation. Implementation requires action and task completion; the latterfrequently means mission-critical projects. Therefore, implementation mustinclude attention to several key areas.

page 36First, task completion requires resources. Resources typically representfunds, people, management talents, technological skills, and equipment.Frequently, implementation of projects is treated as an “addendum” ratherthan an integral part of the strategic management process. However,multiple objectives place conflicting demands on organizational resources.Second, implementation requires a formal and informal organization thatcomplements and supports strategy and projects. Authority, responsibility,and performance all depend on organization structure and culture. Third,planning and control systems must be in place to be certain projectactivities necessary to ensure strategies are effectively performed. Fourth,motivating project contributors will be a major factor for achieving projectsuccess. Finally, areas receiving more attention in recent years are portfoliomanagement and prioritizing projects. Although the strategyimplementation process is not as clear as strategy formulation, all managersrealize that without implementation, success is impossible.Although the four major steps of the strategic managementprocess have not been altered significantly over the years, the view of thetime horizon in the strategy formulation process has been altered radicallyin the last two decades. Global competition and rapid innovation requirebeing highly adaptive to short-run changes while being consistent in thelonger run.2.3 The Need for a Project Priority SystemLO 2-3Understand the need for a project priority system.Implementation of projects without a strong priority system linked tostrategy creates problems. Three of the most obvious problems arediscussed in this section. A priority-driven project portfolio system can goa long way to reduce, or even eliminate, the impact of these problems.Problem 1: The Implementation Gap

In many organizations, top management formulate strategy and leavestrategy implementation to functional managers. Within these broadconstraints, more detailed strategies and objectives are developed by thefunctional managers. The fact that these objectives and strategies are madeindependently at different levels by functional groups within theorganization hierarchy causes manifold problems.Following are some symptoms of organizations struggling with strategydisconnect and unclear priorities.Conflicts frequently occur among functional managers and cause lack oftrust.Frequent meetings are called to establish or renegotiate priorities.People frequently shift from one project to another, depending on currentpriority. Employees are confused about which projects are important.People are working on multiple projects and feel inefficient.Resources are not adequate.Because clear linkages do not exist between strategy and action, theorganizational environment becomes dysfunctional, confused, and ripe forineffective implementation of organization strategy and, thus, of projects.The implementation gap is the lack of understanding and consensus oforganization strategy among top and middle-level managers.A scenario the authors have seen repeated several times follows. Topmanagement pick their top 20 projects for the next planning period, withoutpriorities. Each functional department—Marketing, Finance, Operations,Engineering, Information Technology, and Human Resources—selectsprojects from the list. Unfortunately, independent department prioritiesacross projects are not homogenous. A project that rates first in the ITDepartment can rate 10th in the Finance Department. Implementation of theprojects represents conflicts of interest, with animosities developing overorganizational resources.If this condition exists, how is it possible to implement strategyeffectively? The problem is serious. One study found that only about 25percent of Fortune 500 executives believe there is a strong linkage,consistency, and/or agreement between the strategies they formulate andimplementation. In a study of Deloitte Consulting, MacIntyre reports,

page 37“Only 23 percent of nearly 150 global executives considered their projectportfolios aligned with the core business.”2Problem 2: Organization PoliticsPolitics exist in every organization and can have a significant influence onwhich projects receive funding and high priority. This is especially truewhen the criteria and process for selecting projects are ill-defined and notaligned with the mission of the firm. Project selection may be based not somuch on facts and sound reasoning as on the persuasiveness and power ofpeople advocating projects.The term sacred cow is often used to denote a project that a powerful,high-ranking official is advocating. Case in point, a marketing consultantconfided that he was once hired by the marketing director of a large firm toconduct an independent, external market analysis for a new product the firmwas interested in developing. His extensive research indicated that therewas insufficient demand to warrant the financing of this new product. Themarketing director chose to bury the report and made the consultantpromise never to share this information with anyone. The director explainedthat this new product was the “pet idea” of the new CEO, who saw it as hislegacy to the firm. The director went on to describe the CEO’s irrationalobsession with the project and how he referred to it as his “new baby.” Likea parent fiercely protecting his child, the marketing director believed that hewould lose his job if such critical information ever became known.Project sponsors play a significant role in the selection and successfulimplementation of product innovation projects. Project sponsors aretypically high-ranking managers who endorse and lend political support forthe completion of a specific project. They are instrumental in winningapproval of the project and in protecting the project during the criticaldevelopment stage. The importance of project sponsors should not be takenlightly. For example, a PMI global survey of over 1,000 projectpractitioners and leaders over a variety of industries found thoseorganizations having active sponsors on at least 80 percent of theirprojects/programs have a success rate of 75 percent, 11 percentage pointsabove the survey average of 64 percent. Many promising projects havefailed to succeed due to lack of strong sponsorship.3

page 38The significance of corporate politics can be seen in the ill-fated ALTOcomputer project at Xerox during the mid-1970s.4 The project was atremendous technological success; it developed the first workable mouse,the first laser printer, the first user-friendly software, and the first local areanetwork. All of these developments were five years ahead of their nearestcompetitor. Over the next five years this opportunity to dominate thenascent personal computer market was squandered because of internal in-fighting at Xerox and the absence of a strong project sponsor. (Apple’sMacIntosh computer was inspired by many of these developments.)Politics can play a role not only in project selection but also in theaspirations behind projects. Individuals can enhance their power within anorganization by managing extraordinary and critical projects. Power andstatus naturally accrue to successful innovators and risk takers rather than tosteady producers. Many ambitious managers pursue high-profile projects asa means for moving quickly up the corporate ladder.Many would argue that politics and project management should notmix. A more proactive response is that projects and politics invariably mixand that effective project managers recognize that anysignificant project has political ramifications. Likewise, topmanagement need to develop a system for identifying and selecting projectsthat reduces the impact of internal politics and fosters the selection of thebest projects for the firm.Problem 3: Resource Conflicts and MultitaskingMost projects operate in a multiproject environment. This environmentcreates the problems of project interdependency and the need to shareresources. For example, what would be the impact on the labor resourcepool of a construction company if it should win a contract it would like tobid on? Will existing labor be adequate to deal with the new project—giventhe completion date? Will current projects be delayed? Will subcontractinghelp? Which projects will have priority? Competition among projectmanagers can be contentious. All project managers seek to have the bestpeople for their projects. The problems of sharing resources and schedulingresources across projects grow exponentially as the number of projectsrises. In multiproject environments the stakes are higher and the benefits or

penalties for good or bad resource scheduling become even more significantthan in most single projects (Mortensen & Gardner, 2017).Resource sharing also leads to multitasking. Multitasking involvesstarting and stopping work on one task to go and work on another project,then returning to the work on the original task. People working on severaltasks concurrently are far less efficient, especially where conceptual orphysical shutdown and start-up are significant. Multitasking adds to delaysand costs. Changing priorities exacerbate the multitasking problems evenmore. Likewise, multitasking is more evident in organizations that have toomany projects for the resources they command.The number of small and large projects in a portfolio almost alwaysexceeds the available resources. This capacity overload inevitably leads toconfusion and inefficient use of scarce organizational resources. Thepresence of an implementation gap, of power politics, and of multitaskingadds to the problem of which projects are allocated resources first.Employee morale and confidence suffer because it is difficult to make senseof an ambiguous system. A multiproject organizational environment facesmajor problems without a priority system that is clearly linked to thestrategic plan. See Exhibit 2.2, which lists a few key benefits of ProjectPortfolio Management; the list could easily be extended.EXHIBIT 2-2Benefits of Project Portfolio ManagementBuilds discipline into project selection process.Links project selection to strategic metrics.Prioritizes project proposals across a common set of criteria, rather than on politics oremotion.Allocates resources to projects that align with strategic direction.Balances risk across all projects.Justifies killing projects that do not support organization strategy.Improves communication and supports agreement on project goals.2.4 Project Classification

page 39LO 2-4Distinguish among three kinds of projects.Many organizations find they have three basic kinds of projects in theirportfolio: compliance (emergency—must do), operational, and strategicprojects. (See Figure 2.2.) Compliance projects are typically those neededto meet regulatory conditions required to operate in a region; hence, theyare called “must do” projects. Emergency projects, such as buildingan auto parts factory destroyed by a tsunami or recovering acrashed network, are examples of must do projects. Compliance andemergency projects usually have penalties if they are not implemented.FIGURE 2.2Project ClassificationOperational projects are those that are needed to support currentoperations. These projects are designed to improve the efficiency ofdelivery systems, reduce product costs, and improve performance. Some ofthese projects, given their limited scope and cost, require only immediatemanager approval, while bigger, more expensive projects need extensivereview. Choosing to install a new piece of equipment is an example of thelatter, while modifying a production process is an example of the former.Total quality management (TQM) projects are examples of operationalprojects.Strategic projects are those that directly support the organization’s long-run mission. They frequently are directed toward increasing revenue or

page 40market share. Examples of strategic projects are new products, newtechnologies, research, and development.5Frequently these three classifications are further decomposed byproduct type, organization divisions, and functions that will requiredifferent criteria for project selection. For example, the same criteria for theFinance or Legal Division would not apply to the Information TechnologyDepartment. This often requires different project selection criteria withinthe basic three classifications of strategic, operational, and complianceprojects.2.5 Phase Gate ModelLO 2-5Describe how the phase gate model applies to project management.Before we delve into the intricacies of project selection, we need to put thisprocess in perspective. The selection process is the first part of themanagement system that spans the lifetime of the project. This system hasbeen described as a series of gates that a project must pass through in orderto be completed.6 The purpose is to ensure that the organization is investingtime and resources on worthwhile projects that contribute to its mission andstrategy. Each gate is associated with a project phase and represents adecision point. A gate can lead to three possible outcomes: go(proceed), kill (cancel), or recycle (revise and resubmit). Figure 2.3captures the phase gate model.FIGURE 2.3Phase Gate Process Diagram

The first gate is invisible. It occurs inside the head of a person who hasan idea for a project and must decide whether it is worth investing the timeand effort to submit a formal proposal. This decision may be a gut reactionor involve informal research. Such research might include bouncing theidea off of colleagues or doing online research. It helps if the organizationhas a transparent project selection process where objectives andrequirements for approval are well known.If the person believes his idea is worthwhile, then a project proposal issubmitted conforming to the selection guidelines of the firm. Projectproposals, as you will see, include such items as project objectives, business

page 41case, estimated costs, return on investment, risks, and resourcerequirements. Beyond the basic question of whether the proposal makessense, management assesses how the project outcomes will contribute to themission and strategy of the firm. For example, what strategicobjectives does the project address? A second key question is“How well does the project fit with other projects?” Will it interfere withother, more important projects? Here the final question is whether thisproject is worthy of more planning.If the preliminary proposal is approved, then a project manager and staffare assigned to develop a more comprehensive implementation plan. Thepreliminary proposal is revised and expanded. The plan now includesdetailed information regarding schedule, costs, resource requirements, riskmanagement, and so forth. Not only is the proposal assessed again in termsof strategic importance, but the implementation plan is scrutinized. Doesthe plan make sense? Do the numbers add up? Is it worth the risk? Howmuch confidence is there in the plan? If affirmative, the green light is givento launch the project.Once the project is under way there will likely be one or more progressreviews. The main purpose of progress review is to assess performance anddetermine what, if any, adjustments should be made. In some cases, thedecision is made to cancel, or “kill,” a project due to poor performance orlack of relevancy.The last gate is the finish line. Here the necessary customer acceptancehas been achieved and management has signed off on the fulfillment ofproject requirements. This stage includes a project audit to assess projectsuccess as well as identifying key lessons learned.It should be noted that this is the basic phase gate model. For manyfirms, projects will go through a series of internal escalated reviews beforethey obtain final approval. This is especially true for projects that have highrisks, have high costs, and/or demand scarce resources. Likewise, thenumber of progress gates will vary depending upon the length andimportance of the projects. For example, a three-year U.S. Department ofDefense project will have progress reviews every six months.The remainder of this chapter focuses on gates 2 and 3, which lead to aproject being green lighted. Performance data to assess progress are thesubject of Chapter 13, while the final gate is addressed in Chapter 14.

page 422.6 Selection CriteriaLO 2-6Apply financial and nonfinancial criteria to assess the value of projects.Selection criteria are typically identified as financial and nonfinancial. Ashort description of each is given next, followed by a discussion of their usein practice.Financial CriteriaFor most managers financial criteria are the preferred method to evaluateprojects. These models are appropriate when there is a high level ofconfidence associated with estimates of future cash flows. Two models andexamples are demonstrated in this section—payback and net present value(NPV).Project A has an initial investment of $700,000 and projected cashinflows of $225,000 for 5 years.Project B has an initial investment of $400,000 and projected cashinflows of $110,000 for 5 years.1. The payback model measures the time it will take to recover theproject investment. Shorter paybacks are more desirable. Payback is thesimplest and most widely used model. Payback emphasizescash flows, a key factor in business. Some managers use thepayback model to eliminate unusually risky projects (those with lengthypayback periods). The major limitations of payback are that it ignores thetime value of money, assumes cash inflows for the investment period (andnot beyond), and does not consider profitability. The payback formula isExhibit 2.3A compares the payback for project A and project B. Thepayback for project A is 3.1 years and for project B is 3.6 years. Using thepayback method, both projects are acceptable, since both return the initial

page 43investment in less than five years and have returns on the investment of32.1 and 27.5 percent. Payback provides especially useful information forfirms concerned with liquidity and having sufficient resources to managetheir financial obligations.EXHIBIT 2.3AExample Comparing Two Projects Using Payback MethodMicrosoft Excel2. The net present value (NPV) model uses management’s minimumdesired rate of return (discount rate, for example, 15 percent) to computethe present value of all net cash inflows. If the result is positive (the projectmeets the minimum desired rate of return), it is eligible forfurther consideration. If the result is negative, the project isrejected. Thus, higher positive NPVs are desirable. Excel uses this formula:whereI0=Initial investment (since it is an outflow, the number will benegative)Ft=Net cash inflow for period tk=Required rate of returnn=number of years

Exhibit 2.3B presents the NPV model using Microsoft Excel software. TheNPV model accepts project A, which has a positive NPV of $54,235.Project B is rejected, since the NPV is negative $31,263. Compare the NPVresults with the payback results. The NPV model is more realistic because itconsiders the time value of money, cash flows, and profitability.EXHIBIT 2.3BExample Comparing Two Projects Using Net Present Value MethodMicrosoft ExcelIn the NPV model, the discount rate (return on investment [ROI] hurdlerate) can differ for different projects. For example, the expected ROI onstrategic projects is frequently set higher than operational projects.Similarly, ROIs can differ for riskier versus safer projects. The criteria forsetting the ROI hurdle rate should be clear and applied consistently.Unfortunately, pure financial models fail to include many projectswhere financial return is impossible to measure and/or other factors are vitalto the accept or reject decision. One research study by Foti (2003) showedthat companies using predominantly financial models to prioritize projectsyielded unbalanced portfolios and projects that were not strategicallyoriented.Nonfinancial CriteriaFinancial return, while important, does not always reflect strategicimportance. The past saw firms become overextended by diversifying too

page 44much. Now the prevailing thinking is that long-term survival is dependentupon developing and maintaining core competencies. Companies have to bedisciplined in saying no to potentially profitable projects that are outside therealm of their core mission. This requires other criteria be consideredbeyond direct financial return. For example, a firm may support projectsthat do not have high profit margins for other strategic reasons, includingTo capture larger market share.To make it difficult for competitors to enter the market.To develop an enabler product, which by its introduction will increasesales in more profitable products.To develop core technology that will be used in next-generation products.To reduce dependency on unreliable suppliers.To prevent government intervention and regulation.Less tangible criteria may also apply. Organizations may support projects torestore corporate image or enhance brand recognition. Many organizationsare committed to corporate citizenship and support communitydevelopment projects.Two Multi-Criteria Selection ModelsSince no single criterion can reflect strategic significance, portfoliomanagement requires multi-criteria screening models. Two models, thechecklist and multi-weighted scoring models, are described next.LO 2-7Understand how multi-criteria models can be used to select projects.Checklist ModelsThe most frequently used method in selecting projects has been thechecklist. This approach basically uses a list of questions to reviewpotential projects and to determine their acceptance or rejection. Several ofthe typical questions found in practice are listed in Exhibit 2.4.

EXHIBIT 2.4 Sample Selection Questions Used in PracticeTopicQuestionStrategy/alignmentWhat specific organization strategy does this project align with?DriverWhat business problem does the project solve?SponsorshipWho is the project sponsor?RiskWhat is the impact of not doing this project?RiskHow risky is the project?Benefits, value, ROIWhat is the value of the project to this organization?Benefits, value, ROIWhen will the project show results?ObjectivesWhat are the project objectives?Organization cultureIs our organizational culture right for this type of project?ResourcesWill internal resources be available for this project?ScheduleHow long will this project take?Finance/portfolioWhat is the estimated cost of the project?PortfolioHow does this project interact with current projects?A justification of checklist models is that they allow great flexibility inselecting among many different types of projects and are easily used acrossdifferent divisions and locations. Although many projects are selected usingsome variation of the checklist approach, this approach has seriousshortcomings. Its major shortcomings are that it fails to answer the relativeimportance or value of a potential project to the organization and fails toallow for comparison with other potential projects. Each potential projectwill have a different set of positive and negative answers. How do youcompare? Ranking and prioritizing projects by their importance is difficult,if not impossible. This approach also leaves the door open to the potentialopportunity for power plays, politics, and other forms of manipulation. Toovercome these serious shortcomings, experts recommend the use of amulti-weighted scoring model to select projects, which is examined next.Multi-Weighted Scoring ModelsA weighted scoring model typically uses several weighted selection criteriato evaluate project proposals. Weighted scoring models generally includequalitative and/or quantitative criteria. Each selection criterion is assigned aweight. Scores are assigned to each criterion for the project, based on its

page 45importance to the project being evaluated. The weights and scores aremultiplied to get a total weighted score for the project. Using these multiplescreening criteria, projects can then be compared using the weighted score.Projects with higher-weighted scores are considered better.Selection criteria need to mirror the critical success factors of anorganization. For example, 3M set a target that 25 percent of the company’ssales would come from products fewer than four years old versus the oldtarget of 20 percent. Their priority system for project selection stronglyreflects this new target. On the other hand, failure to pick the right factorswill render the screening process useless in short order. See Snapshot fromPractice 2.2: Crisis IT.SNAPSHOT FROM PRACTICE 2.2Crisis IT*In May 2007, Frontier Airlines Holdings hired Gerry Coady as chiefinformation officer (CIO). Nearly a year later the airline filed for bankruptcyunder Chapter 11. In an interview Coady describes how he managed ITprojects during the bankruptcy and recession crisis of 2008–2009.Fundamentally, Coady faced a situation of too many projects and too few resources.Coady used a strategy of focusing on reducing the number of projects in the portfolio. Heput together a steering committee of senior management that reviewed several hundredprojects. The end result was a reduction to less than 30 projects remaining in theportfolio.HOW CAN YOU GET TO A BACKLOG OF OVER 100 PROJECTS?“There are never enough resources to get everything done.” Backlogs build over time.Sacred cow projects get included in the selection system. Projects proposed from peoplewho have left the airline still reside in the project portfolio. Non-value-added projectssomehow make their way into the project portfolio. Soon the queue gets longer. Witheveryone in IT working on too many projects concurrently, project completion andproductivity are slow.WHICH PROJECTS REMAIN?To cut the number of projects, the steering committee used a weighting scheme thatreflected the airline’s priorities, which were fly safe, generate revenue, reduce costs, andcustomer service. The weighting scheme easily weeded out the fluff. Coady noted that“by the time you get to the 20s the margin of differentiation gets narrower and narrower.”

Of the remaining projects, project sponsors had to have solid justification why theirproject was important. Reduction of the number of projects placed emphasis on high-value projects.kasto/123RFWHAT ADVICE DOES COADY HAVE FOR CRISIS MANAGEMENT?In times of crisis, it is easier to take bold steps to make changes. But you need to have aclear vision of what you should be focusing on with the resources available. Coadysuggests, “It comes back to really having a good idea of what the initial business case fora project is and what resources it is consuming, both people and otherwise.”*B. Worthen, “Crisis IT,” Wall Street Journal, April 20, 2009, p. 6.Figure 2.4 represents a project scoring matrix using some of the factorsfound in practice. The screening criteria selected are shown across the topof the matrix (e.g., stay within core competencies . . . ROI of 18 percentplus). Management weights each criterion (a value of 0 to a high of, say, 3)by its relative importance to the organization’s objectives and strategic plan.Project proposals are then submitted to a project priority team or projectoffice.FIGURE 2.4Project Screening Matrix

page 46Each project proposal is then evaluated by its relative contribution/valueadded to the selected criteria. Values of 0 to a high of 10 are assigned toeach criterion for each project. This value represents the project’s fit to thespecific criterion. For example, project 1 appears to fit well with thestrategy of the organization, since it is given a value of 8. Conversely,project 1 does nothing to support reducing defects (its value is 0). Finally,this model applies the management weights to each criterion by importanceusing a value of 1 to 3. For example, ROI and strategic fit have a weight of3, while urgency and core competencies have weights of 2. Applying theweight to each criterion, the priority team derives the weighted total pointsfor each project. For example, project 5 has the highest value of102 [(2 × 1) + (3 × 10) + (2 × 5) + (2.5 × 10) + (1 × 0) + (1 × 8)+ (3 × 9) = 102] and project 2 has a low value of 27. If the resourcesavailable create a cutoff threshold of 50 points, the priority team wouldeliminate projects 2 and 4. Project 5 would receive first priority, project nsecond, and so on. In rare cases where resources are severely limited andproject proposals are similar in weighted rank, it is prudent to pick theproject placing less demand on resources. Weighted multi-criteria modelssimilar to this one are rapidly becoming the dominant choice for prioritizingprojects.At this point in the discussion it is wise to stop and put things intoperspective. While selection models like the one in this section may yield

page 47numeric solutions to project selection decisions, models should not makethe final decisions—the people using the models should. No model, nomatter how sophisticated, can capture the total reality it is meant torepresent. Models are tools for guiding the evaluation process so that thedecision makers will consider relevant issues and reach a meeting of theminds as to which projects should be supported. This is a much moresubjective process than calculations suggest.2.7 Applying a Selection ModelLO 2-8Apply an objective priority system to project selection.Project ClassificationIt is not necessary to have exactly the same criteria for the different types ofprojects discussed in the previous section (strategic and operations).However, experience shows most organizations use similar criteria acrossall types of projects, with perhaps one or two criteria specific to the type ofproject—for example, strategic breakthrough versus operational.Regardless of criteria differences among different types of projects, themost important criterion for selection is the project’s fit to the organizationstrategy. Therefore, this criterion should be consistent across all types ofprojects and carry a high priority relative to other criteria. This uniformityacross all priority models used can keep departments from suboptimizingthe use of organizational resources. Project proposals should be classifiedby type so the appropriate criteria can be used to evaluate them.Selecting a ModelIn the past, financial criteria were used almost to the exclusion of othercriteria. However, in the last two decades we have witnessed a dramatic

shift to include multiple criteria in project selection. Concisely put,profitability alone is simply not an adequate measure of contribution;however, it is still an important criterion, especially for projects thatenhance revenue and market share such as breakthrough R&D projects.Today senior management are interested in identifying the potential mixof projects that will yield the best use of human and capital resources tomaximize return on investment in the long run. Factors such as researchingnew technology, public image, ethical position, protection of theenvironment, core competencies, and strategic fit might be importantcriteria for selecting projects. Weighted scoring criteria seem the bestalternative to meet this need.Weighted scoring models result in bringing projects into closeralignment with strategic goals. If the scoring model is published andavailable to everyone in the organization, some discipline and credibilityare attached to the selection of projects. The number of wasteful projectsusing resources is reduced. Politics and sacred cow projects are exposed.Project goals are more easily identified and communicated using theselection criteria as corroboration. Finally, using a weighted scoringapproach helps project managers understand how their project was selected,how their project contributes to organization goals, and how it compareswith other projects. Project selection is one of the most important decisionsguiding the future success of an organization.Criteria for project selection are where the power of a portfolio starts tomanifest itself. New projects are aligned with the strategic goals of theorganization. With a clear method in place for selecting projects, projectproposals can be solicited.Sources and Solicitation of Project ProposalsAs you would guess, projects should come from anyone who believes herproject will add value to the organization. However, many organizationsrestrict proposals from specific levels or groups within the organization.This could be an opportunity lost. Good ideas are not limited to certaintypes or classes of organization stakeholders.Figure 2.5A provides an example of a proposal form for an automaticvehicular tracking (Automatic Vehicle Location) public transportationproject. Figure 2.5B presents a preliminary risk analysis for a 500-acre wind

farm. Many organizations use risk analysis templates to gain a quick insightinto a project’s inherent risks. Risk factors depend on the organization andtype of projects. This information is useful in balancing the project portfolioand identifying major risks when executing the project. Project risk analysisis the subject of Chapter 7.FIGURE 2-5AA Proposal Form for an Automatic Vehicular Tracking (AVL) Public Transportation Project

FIGURE 2.5BRisk Analysis for a 500-Acre Wind Farm

page 48page 49In some cases organizations will solicit ideas for projects when theknowledge requirements for the project are not available in theorganization. Typically the organization will issue a Request for Proposal(RFP) to contractors/vendors with adequate experience toimplement the project. In one example, a hospital published anRFP that asked for a bid to design and build a new operating room that usedthe latest technology. Several architecture firms submitted bids to thehospital. The bids for the project were evaluated internally against otherpotential projects. When the project was accepted as a go, other criteriawere used to select the best-qualified bidder.

Ranking Proposals and Selection of ProjectsCulling through so many proposals to identify those that add the most valuerequires a structured process. Figure 2.6 shows a flow chart of a screeningprocess beginning with the submission of a formal project proposal.7 Asenior priority team evaluates each proposal in terms of feasibility, potentialcontribution to strategic objectives, and fit within a portfolio of currentprojects. Given selection criteria and current portfolio, the priority teamrejects or accepts the project.FIGURE 2.6Project Screening ProcessIf the project is approved, a project manager and staff are assigned todevelop a detailed implementation plan. Once completed, the proposal withimplementation plan is reviewed a second time. Veteran project managers

page 50are assigned to the priority team. They draw on their experience to identifypotential flaws in the plan. Strategic value is again assessed, but within thecontext of a more detailed plan. Variances between what wasestimated in the initial proposal and final estimates based onmore complete research/planning are examined. If significant negativedifferences are found (e.g., the initial total cost estimate was $10 million butthe final estimate was $12 million, or the end product will no longer includea key feature), the proposal will likely be deferred to more seniormanagement to decide whether the project should still be approved.Otherwise, the project is approved and priority assigned. Managementissues a charter authorizing the project manager to form a project team andsecure resources to begin project work.Figure 2.7 is a partial example of an evaluation form used by a largecompany to prioritize and select new projects. The form distinguishesbetween must and want objectives. If a project does not meet designated“must” objectives, it is not considered and is removed from consideration.Organization (or division) objectives have been ranked and weighted bytheir relative importance—for example, “Improve external customerservice” carries a relative weight of 83 when compared to other wantobjectives. The want objectives are directly linked to objectives found inthe strategic plan.FIGURE 2.7Priority Screening Analysis

page 51Impact definitions represent a further refinement to the screeningsystem. They are developed to gauge the predicted impact a specific projectwould have on meeting a particular objective. A numeric scheme is createdand anchored by defining criteria. To illustrate how this works, let’sexamine the $5 million in new sales objective. A “0” is assigned if theproject will have no impact on sales or less than $100,000, a“1” is given if predicted sales are more than $100,000 but lessthan $500,000, a “2” if greater than $500,000. These impact assessmentsare combined with the relative importance of each objective to determine

page 52the predicted overall contribution of a project to strategic objectives. Forexample, project 26 creates an opportunity to fix field problems, has noeffect on sales, and will have major impact on customer service. On thesethree objectives, project 26 would receive a score of 265 [99 + 0 + (2 ×83)]. Individual weighted scores are totaled for each project and are used toprioritize projects.Responsibility for PrioritizingSenior management should be responsible for prioritizing projects. Itrequires more than a blessing. Management will need to rank and weigh, inconcrete terms, the objectives and strategies they believe are most critical tothe organization. This public declaration of commitment can be risky if theranked objectives later prove to be poor choices, but setting thecourse for the organization is top management’s job. The goodnews is, if management is truly trying to direct the organization to a strongfuture position, a good project priority system supports their efforts anddevelops a culture in which everyone is contributing to the goals of theorganization.2.8 Managing the Portfolio SystemLO 2-9Understand the need to manage the project portfolio.Managing the portfolio takes the selection system one step higher in that themerits of a particular project are assessed within the context of existingprojects. At the same time it involves monitoring and adjusting selectioncriteria to reflect the strategic focus of the organization. This requiresconstant effort. The priority system can be managed by a small group of keyemployees in a small organization. Or in larger organizations, the prioritysystem can be managed by the project office or a governance team of seniormanagers.Senior Management Input

Management of a portfolio system requires two major inputs from seniormanagement. First, senior management must provide guidance inestablishing selection criteria that strongly align with the currentorganization strategies. Second, senior management must annually decidehow they wish to balance the available organizational resources (people andcapital) among the different types of projects. A preliminary decision ofbalance must be made by top management (e.g., 20 percent compliance, 50percent strategic, and 30 percent operational) before project selection takesplace, although the balance may be changed when the projects submittedare reviewed. Given these inputs the priority team or project office cancarry out its many responsibilities, which include supporting projectsponsors and representing the interests of the total organization.Governance Team ResponsibilitiesThe governance team, or project office, is responsible for publishing thepriority of every project and ensuring the process is open and free of powerpolitics. For example, most organizations using a governance team orproject office use an electronic bulletin board to disperse the currentportfolio of projects, the current status of each project, and current issues.This open communication discourages power plays. Over time thegovernance team evaluates the progress of the projects in the portfolio. Ifthis whole process is managed well, it can have a profound impact on thesuccess of an organization. See Snapshot from Practice 2.3: Project CodeNames for the rationale behind titles given to projects.Constant scanning of the external environment to determine iforganizational focus and/or selection criteria need to be changed isimperative. Periodic priority review and changes need to keep current withthe changing environment and keep a unified vision of organization focus.If projects are classified by must do, operation, and strategic, each project inits class should be evaluated by the same criteria. Enforcing the projectpriority system is critical. Keeping the whole system open and aboveboardis important to maintaining the integrity of the system and keeping new,young executives from going around the system.Balancing the Portfolio for Risks and Types of Projects

page 53A major responsibility of the priority team is to balance projects by type,risk, and resource demand. This requires a total organization perspective.Hence, a proposed project that ranks high on most criteria may notbe selected because the organization portfolio already includes toomany projects with the same characteristics—for example, project risklevel, use of key resources, high cost, non-revenue-producing, and longdurations. Balancing the portfolio of projects is as important as selectingprojects. Organizations need to evaluate each new project in terms of whatit adds to the project mix. Short-term needs must be balanced with long-term potential. Resource usage needs to be optimized across all projects, notjust the most important project.SNAPSHOT FROM PRACTICE 2.3Project Code Names*What do Yangtze, Operation Iceberg, and Get Blue have in common? Theyare all code names given to projects. Project code names are used forseveral reasons:To uniquely identify the project within the organization.Apple Corporation used to name major releases of MAC OS X after big cats such asJaguar, Tiger, Panther, and Leopard but now names them after national parks (e.g.,Yosemite).To assist in maintaining secrecy of the project against rival concerns.Oxcart was used the U.S. Department of Defense during the height of the Cold Warfor the secret development of a supersonic fighter jet.As a public relations tool to garner support for project objectivesOperation Just Cause was the name given by the U.S. government to the 1989invasion of Panama, which ousted corrupt leader Manual Noriega.To inspire and elevate performance.Revolution was used by Nintendo for its groundbreaking Wii video game console.Often on small projects, names convey a playful sense of humor. For example, a setof interrelated software projects were all named after Smurf characters (Papa Smurf,Handy Smurf, Dreamy Smurf, and so on). Other times the project name reflects aninside joke—for example, one software project was named ALINA, which was anacronym for At Least It Is Not Access.

McGraw-Hill Education/Jill Braaten, photographer*G. C. Sieminski, “The Art of Naming Operations,” Parameters, Autumn 1995, pp. 81–98;“Operation Know-It-All: The Indispensable Guide to Choosing Good Project Names,”articulatemarketing.com. Accessed 12/20/15.Two types of risk are associated with projects. First are risks associatedwith the total portfolio of projects, which should reflect the organization’srisk profile. Second are specific project risks that can inhibit the executionof a project. In this chapter we look only to balancing the organizationalrisks inherent in the project portfolio, such as market risk, ability to execute,time-to-market, and technology advances. Project-specific risks will becovered in detail in Chapter 7.David and Jim Matheson studied R&D organizations and developed aclassification scheme that could be used for assessing a project portfolio(see Figure 2.8).8 They separated projects in terms of degree of difficultyand commercial value and came up with four basic types of projects:FIGURE 2.8Project Portfolio Matrix

page 54Bread-and-butter projects are relatively easy to accomplish and producemodest commercial value. They typically involve evolutionaryimprovements to current products and services. Examples includesoftware upgrades and manufacturing cost-reduction efforts.Pearls are low-risk development projects with high commercial payoffs.They represent revolutionary commercial advances using proventechnology. Examples include next-generation integrated circuit chipsand subsurface imaging to locate oil and gas.Oysters are high-risk, high-value projects. These projects involvetechnological breakthroughs with tremendous commercial potential.Examples include embryonic DNA treatments and new kinds of metalalloys.White elephants are projects that at one time showed promise but are nolonger viable. Examples include products for a saturated market and apotent energy source with toxic side effects.The Mathesons report that organizations often have too many whiteelephants and too few pearls and oysters. To maintain strategic advantagethey recommend that organizations capitalize on pearls, eliminate orreposition white elephants, and balance resources devoted to bread-and-butter and oyster projects to achieve alignment with overall strategy.

page 55Although their research centers on R&D organizations, their observationsappear to hold true for all types of project organizations.SummaryMultiple competing projects, limited skilled resources, dispersed virtualteams, time-to-market pressures, and limited capital serve as forces for theemergence of project portfolio management that provides the infrastructurefor managing multiple projects and linking business strategy with projectselection. The most important element of this system is the creation of aranking system that utilizes multiple, weighted criteria that reflect themission and strategy of the firm. It is critical to communicate prioritycriteria to all organizational stakeholders so that the criteria can be thesource of inspiration for new project ideas.Every significant project selected should be ranked and the resultspublished. Senior management must take an active role in setting prioritiesand supporting the priority system. Going around the priority system willdestroy its effectiveness. Project review boards need to include seasonedmanagers who are capable of asking tough questions and distinguishingfacts from fiction. Resources (people, equipment, and capital) for majorprojects must be clearly allocated and not conflict with daily operations orbecome an overload task.The governance team needs to scrutinize significant projects in terms ofnot only their strategic value but also their fit with the portfolio of projectscurrently being implemented. Highly ranked projects may be deferred oreven turned down if they upset the current balance among risks, resources,and strategic initiatives. Project selection must be based not only on themerits of the specific project but also on what it contributes to the currentproject portfolio mix. This requires a holistic approach to aligning projectswith organization strategy and resources.Key Terms

Implementation gap, 36Net present value (NPV), 41Organization politics, 37Payback, 41Phase gate model, 40Priority system, 36Priority team, 45Project portfolio, 36Project sponsor, 37Sacred cow, 37Strategic management, 31Review Questions1. Describe the major components of the strategic management process.2. Explain the role projects play in the strategic management process.3. How are projects linked to the strategic plan?4. The portfolio of projects is typically represented by compliance,strategic, and operations projects. What impact can this classificationhave on project selection?5. Why does the priority system described in this chapter require that itbe open and published? Does the process encourage bottom-upinitiation of projects? Does it discourage some projects? Why?6. Why should an organization not rely only on ROI to select projects?7. Discuss the pros and cons of the checklist versus the weighted factormethod of selecting projects.SNAPSHOT FROM PRACTICEDiscussion Questions

page 562.1 Does IBM’s Watson’s Jeopardy Project Represent a Change inStrategy?1. Why would IBM want to move from computer hardware toservice products?2. What impact will artificial intelligence (AI) have on the fieldof project management?2.2 Crisis IT1. What benefits did Frontier Airlines obtain by using aweighted scoring scheme to assess the value of projects?2.3 Project Code Names1. Can you think of a project code name not mentioned in theSnapshot? What function did it serve?Exercises1. You manage a hotel resort located on the South Beach on the Islandof Kauai in Hawaii. You are shifting the focus of your resort from atraditional fun-in-the-sun destination to eco-tourism. (Eco-tourismfocuses on environmental awareness and education.) How would youclassify the following projects in terms of compliance, strategic, andoperational?a. Convert the pool heating system from electrical to solar power.b. Build a four-mile nature hiking trail.c. Renovate the horse barn.d. Launch a new promotional campaign with Hawaii Airlines.e. Convert 12 adjacent acres into a wildlife preserve.f. Update all the bathrooms in condos that are 10 years old or older.g. Change hotel brochures to reflect eco-tourism image.h. Test and revise disaster response plan based on new requirements.How easy was it to classify these projects? What made some projectsmore difficult than others? What do you think you now know that

page 57would be useful for managing projects at the hotel?2. Two new software projects are proposed to a young, start-upcompany.* The Alpha project will cost $150,000 to develop and isexpected to have an annual net cash flow of $40,000. The Betaproject will cost $200,000 to develop and is expected to have anannual net cash flow of $50,000. The company is very concernedabout their cash flow. Using the payback period, which project isbetter from a cash flow standpoint? Why?3. A five-year project has a projected net cash flow of $15,000, $25,000,$30,000, $20,000, and $15,000 in the next five years. It will cost$50,000 to implement the project. If the required rate of return is 20percent, conduct a discounted cash flow calculation to determine theNPV.4. You work for the 3T company, which expects to earn at least 18percent on its investments. You have to choose between two similarprojects. The following chart shows the cash information for eachproject. Which of the two projects would you fund if the decisionwere based only on financial information? Why?5. You are the head of the project selection team at SIMSOX.* Yourteam is considering three different projects. Based on past history,SIMSOX expects at least a rate of return of 20 percent.Given the following information for each project, which oneshould be SIMSOX’s first priority? Should SIMSOX fund any of theother projects? If so, what should be the order of priority based onreturn on investment?

Project: Dust DevilsYear Investment Revenue Stream0 $500,000    01  50,0002 250,0003 350,000Project: OspreyYear Investment Revenue Stream0 $250,000    01 75,0002 75,0003 75,0004 50,000Project: VoyagersYear Investment Revenue Stream0 $75,000    01  15,0002  25,0003  50,0004  50,0005 150,0006. You are the head of the project selection team at Broken ArrowRecords. Your team is considering three different recording projects.Based on past history, Broken Arrow expects at least a rate of returnof 20 percent.Given the following information for each project, which one shouldbe Broken Arrow’s first priority? Should Broken Arrow fund any of

page 58the other projects? If so, what should be the order of priority based onreturn on investment?Recording Project: Time Fades AwayYear Investment Revenue Stream0 $600,000    01 600,0002  75,0003  20,0004  15,0005  10,000Recording Project: On the BeachYear Investment Revenue Stream0 $400,000    01 400,0002 100,0003  25,0004  20,0005  10,000Recording Project: Tonight’s the NightYear Investment Revenue Stream0 $200,000    01 200,0002 125,0003  75,0004  20,0005  10,000

page 597. The Custom Bike Company has set up a weighted scoring matrix forevaluation of potential projects. Following are five projects underconsideration.a. Using the scoring matrix in the following chart, which project wouldyou rate highest? Lowest?b. If the weight for “Strong Sponsor” is changed from 2.0 to 5.0, willthe project selection change? What are the three highest-weightedproject scores with this new weight?c. Why is it important that the weights mirror critical strategic factors?*The solution to these exercises can be found in Appendix One.Project Screening MatrixReferencesAdler, P. S., et al., “Getting the Most Out of Your ProductDevelopment Process,” Harvard Business Review, vol. 74, no. 2, 2003,pp. 134–52.

Benko, C., and F. W. McFarlan, Connecting the Dots: AligningProjects with Objectives in Unpredictable Times (Boston: HarvardBusiness School Press, 2003).Boyer, C., “Make Profit Your Priority,” PM Network, October 2003,pp. 37–42.Brown, K., N. Hyer, and R. Ettenson, “The Question Every ProjectTeam Should Answer,” Sloan Management Review, vol. 55, no. 1(2013), pp. 49–57.Cohen, D., and R. Graham, The Project Manager’s MBA (SanFrancisco: Jossey-Bass, 2001), pp. 58–59.Descamps, J. P., “Mastering the Dance of Change: Innovation as aWay of Life,” Prism, Second Quarter, 1999, pp. 61–67.Doran, G. T., “There’s a Smart Way to Write Management Goals andObjectives”, Management Review, November 1981, pp. 35–36.Floyd, S. W., and B. Woolridge, “Managing Strategic Consensus: TheFoundation of Effectiveness Implementation,” Academy ofManagement Executives, vol. 6, no. 4 (1992), pp. 27–39.Foti, R., “Louder Than Words,” PM Network, December 2002, pp. 22–29.Foti, R., “Make Your Case, Not All Projects Are Equal,” PM Network,July 2003, pp. 35–43.Friedman, Thomas L., Hot, Flat, and Crowded (New York: Farrar,Straus, and Giroux, 2008).Helm, J., and K. Remington, “Effective Project Sponsorship: AnEvaluation of the Executive Sponsor in Complex InfrastructureProjects by Senior Project Managers,” Project Management Journal,vol. 36, no. 1 (September 2005), pp. 51–61.Hutchens, G., “Doing the Numbers,” PM Network, March 2002, p. 20.“IBM Wants to Put Watson in Your Pocket,” Bloomberg Businessweek,September 17–23, 2012, pp. 41–42.

page 60Johnson, R. E., “Scrap Capital Project Evaluations,” Chief FinancialOfficer, May 1998, p. 14.Kaplan, R. S., and D. P. Norton, “The Balanced Scorecard—MeasuresThat Drive Performance,” Harvard Business Review, January/February1992, pp. 73–79.Kenny, J., “Effective Project Management for Strategic Innovation andChange in an Organizational Context,” Project Management Journal,vol. 34, no. 1 (2003), pp. 45–53.Kharbanda, O. P., and J. K. Pinto, What Made Gertie Gallop: Learningfrom Project Failures (New York: Van Nostrand Reinhold, 1996), pp.106–11, 263–83.Korte, R. F., and T. J. Chermack, “Changing Organizational Culturewith Scenario Planning,” Futures, vol. 39, no. 6 (August 2007), pp.645–56.Leifer, R., C. M. McDermott, G. C. O’Connor, L. S. Peters, M. Price,and R. W. Veryzer, Radical Innovation: How Mature Companies CanOutsmart Upstarts (Boston: Harvard Business School Press, 2000).Magretta, Joan, Understanding Michael Porter: The Essential Guideto Competition and Strategy (Boston: Harvard Business Press, 2011).Milosevic, D. Z., and S. Srivannaboon, “A Theoretical Framework forAligning Project Management with Business Strategy,” ProjectManagement Journal, vol. 37, no. 3 (August 2006), pp. 98–110.Morris, P. W., and A. Jamieson, “Moving from Corporate Strategy toProject Strategy,” Project Management Journal, vol. 36, no. 4(December 2005), pp. 5–18.Mortensen, M., and H. K. Gardner, “The OvercommittedOrganization,” Harvard Business Review, September/October 2017,pp. 58–65.Motta, Silva, and Rogério Hermida Quintella, “Assessment of Non-Financial Criteria in the Selection of Investment Projects for SeedCapital Funding: The Contribution of Scientometrics and

Patentometrics,” Journal of Technology Management Innovation, vol.7, no. 3 (2012).Raskin, P., et al., Great Transitions: The Promise and Lure of the TimesAhead, www.gtinitiative.org/documents/Great_Transitions.pdf.Accessed 6/3/08.Schwartz, Peter, and Doug Randall, “An Abrupt Climate ChangeScenario and its Implications for United States National Security,”Global Business Network, Inc., October 2003.Shenhar, A., “Strategic Project Leadership: Focusing Your Project onBusiness Success,” Proceedings of the Project Management InstituteAnnual Seminars & Symposium, San Antonio, Texas, October 3–10,2002, CD.Swanson, S., “All Things Considered,” PM Network, February 2011,pp. 36–40.Case 2.1Hector Gaming CompanyHector Gaming Company (HGC) is an educational gaming companyspecializing in young children’s educational games. HGC has justcompleted their fourth year of operation. This year was a banner year forHGC. The company received a large influx of capital for growth by issuingstock privately through an investment banking firm. It appears the return oninvestment for this past year will be just over 25 percent with zero debt!The growth rate for the last two years has been approximately 80 percenteach year. Parents and grandparents of young children have been buyingHGC’s products almost as fast as they are developed. Every member of the56-person firm is enthusiastic and looking forward to helping the firm growto be the largest and best educational gaming company in the world. Thefounder of the firm, Sally Peters, has been written up in Young

page 61Entrepreneurs as “the young entrepreneur to watch.” She has been able todevelop an organizational culture in which all stakeholders are committedto innovation, continuous improvement, and organization learning.Last year, 10 top managers of HGC worked with McKinley Consultingto develop the organization’s strategic plan. This year the same 10 managershad a retreat in Aruba to formulate next year’s strategic plan using the sameprocess suggested by McKinley Consulting. Most executives seem to havea consensus of where the firm should go in the intermediateand long term. But there is little consensus on how this shouldbe accomplished. Peters, now president of HGC, feels she may be losingcontrol. The frequency of conflicts seems to be increasing. Someindividuals are always requested for any new project created. Whenresource conflicts occur among projects, each project manager believes hisor her project is most important. More projects are not meeting deadlinesand are coming in over budget. Yesterday’s management meeting revealedsome top HGC talent have been working on an international business gamefor college students. This project does not fit the organization vision ormarket niche. At times it seems everyone is marching to his or her owndrummer. Somehow more focus is needed to ensure everyone agrees onhow strategy should be implemented, given the resources available to theorganization.Yesterday’s meeting alarmed Peters. These emerging problems arecoming at a bad time. Next week HGC is ramping up the size of theorganization, number of new products per year, and marketing efforts.Fifteen new people will join HGC next month. Peters is concerned thatpolicies be in place that will ensure the new people are used mostproductively. An additional potential problem looms on the horizon. Othergaming companies have noticed the success HGC is having in their nichemarket; one company tried to hire a key product development employeeaway from HGC. Peters wants HGC to be ready to meet any potentialcompetition head on and to discourage any new entries into their market.Peters knows HGC is project driven; however, she is not as confident thatshe has a good handle on how such an organization should be managed—especially with such a fast growth rate and potential competition closer tobecoming a reality. The magnitude of emerging problems demands quickattention and resolution.

page 62Peters has hired you as a consultant. She has suggested the followingformat for your consulting contract. You are free to use another format if itwill improve the effectiveness of the consulting engagement.What is our major problem?Identify some symptoms of the problem.What is the major cause of the problem?Provide a detailed action plan that attacks the problem. Be specific andprovide examples that relate to HGC.Case 2.2Film PrioritizationThe purpose of this case is to give you experience in using a project prioritysystem that ranks proposed projects by their contribution to theorganization’s objectives and strategic plan.COMPANY PROFILEThe company is the film division for a large entertainment conglomerate.The main office is located in Anaheim, California. In addition to the featurefilm division, the conglomerate includes theme parks, home videos, atelevision channel, interactive games, and theatrical productions. Thecompany has been enjoying steady growth over the past 10 years. Last yeartotal revenues increased by 12 percent to $21.2 billion. The company isengaged in negotiations to expand its theme park empire to mainland Chinaand Poland. The film division generated $274 million in revenues, whichwas an increase of 7 percent over the past year. Profit margin wasdown 3 percent to 16 percent because of the poor response to threeof the five major film releases for the year.

COMPANY MISSIONThe mission for the firm is as follows:Our overriding objective is to create shareholder value by continuing to be the world’spremier entertainment company from a creative, strategic, and financial standpoint.The film division supports this mission by producing four to six high-quality, family entertainment films for mass distribution each year. In recentyears the CEO of the company has advocated that the firm take a leadershipposition in championing environmental concerns.COMPANY “MUST” OBJECTIVESEvery project must meet the must objectives as determined by executivemanagement. It is important that selected film projects not violate suchobjectives of high strategic priority. There are three must objectives:1. All projects meet current legal, safety, and environmental standards.2. All film projects should receive a PG or lower advisory rating.3. All projects should not have an adverse effect on current or plannedoperations within the larger company.COMPANY “WANT” OBJECTIVESWant objectives are assigned weights for their relative importance. Topmanagement is responsible for formulating, ranking, and weightingobjectives to ensure that projects support the company’s strategy andmission. The following is a list of the company’s want objectives:1. Be nominated for and win an Academy Award for Best Animated Featureor Best Picture of the Year.2. Generate additional merchandise revenue (action figures, dolls,interactive games, music CDs).3. Raise public consciousness about environmental issues and concerns.4. Generate profit in excess of 18 percent.5. Advance the state of the art in film animation and preserve the firm’sreputation.6. Provide the basis for the development of a new ride at a company-ownedtheme park.

page 63ASSIGNMENTYou are a member of the priority team in charge of evaluating and selectingfilm proposals. Use the provided evaluation form to formally evaluate andrank each proposal. Be prepared to report your rankings and justify yourdecisions.Assume that all of the projects have passed the estimated hurdle rate of14 percent ROI. In addition to the brief film synopsis, the proposals includethe following financial projections of theater and video sales: 80 percentchance of ROI, 50 percent chance of ROI, and 20 percent chance of ROI.For example, for proposal #1 (Dalai Lama) there is an 80 percentchance that it will earn at least 8 percent return on investment (ROI), a50/50 chance the ROI will be 18 percent, and a 20 percent chance that theROI will be 24 percent.FILM PROPOSALSPROJECT PROPOSAL 1: MY LIFE WITH DALAI LAMAThis project is an animated, biographical account of the Dalai Lama’schildhood in Tibet based on the popular children’s book Tales from Nepal.The Lama’s life is told through the eyes of “Guoda,” a field snake, andother local animals who befriend the Dalai Lama and help him understandthe principles of Buddhism.Probability 80% 50% 20%ROI  8% 18% 24%PROJECT PROPOSAL 2: HEIDIThe project is a remake of the classic children’s story with music written byaward-winning composers Syskle and Obert. The big-budget film willfeature top-name stars and breathtaking scenery of the Swiss Alps.Probability 80% 50% 20%ROI  2%  2% 30%

page 64PROJECT PROPOSAL 3: THE YEAR OF THE ECHOThis project is a low-budget documentary that celebrates the career of oneof the most influential bands in rock-and-roll history. The film will bedirected by new-wave director Elliot Cznerzy and will combine concertfootage and behind-the-scenes interviews spanning the 25-year history ofthe rock band the Echos. In addition to great music, the film will focus onthe death of one of the founding members from a heroin overdose andreveal the underworld of sex, lies, and drugs in the music industry.Probability 80% 50% 20%ROI 12% 14% 18%PROJECT PROPOSAL 4: ESCAPE FROM RIO JAPUNIThis project is an animated feature set in the Amazon rainforest. The storycenters around Pablo, a young jaguar that attempts to convince warringjungle animals that they must unite and escape the devastation of local clearcutting.Probability 80% 50% 20%ROI 15% 20% 24%PROJECT PROPOSAL 5: NADIA!This project is the story of Nadia Comaneci, the famous Romanian gymnastwho won three gold medals at the 1976 Summer Olympic Games. The low-budget film will document her life as a small child in Romania and how shewas chosen by Romanian authorities to join their elite, state-run athleticprogram. The film will highlight how Nadia maintained her independentspirit and love for gymnastics despite a harsh, regimented training program.Probability 80% 50% 20%ROI  8% 15% 20%Project Priority Evaluation Form

PROJECT PROPOSAL 6: KEIKO—ONE WHALE OF A STORYThe story of Keiko, a famous killer whale, will be told by an imaginaryoffspring, Seiko, who in the distant future is telling her children about theirfamous grandfather. The big-budget film will integrate actual footage of thewhale within a realistic animated environment using state-of-the-art

page 65computer imagery. The story will reveal how Keiko responded to histreatment by humans.Probability 80% 50% 20%ROI  6% 18% 25%PROJECT PROPOSAL 7: GRAND ISLANDThis project is the true story of a group of junior-high biology students whodiscover that a fertilizer plant is dumping toxic wastes into a nearby river.The moderate-budget film depicts how students organize a grassrootscampaign to fight local bureaucracy and ultimately force the fertilizer plantto restore the local ecosystem.Probability 80% 50% 20%ROI  9% 15% 20%Case 2.3Fund Raising Project SelectionThe purpose of this “case exercise” is to provide you with experience inusing a project selection process that ranks proposed projects by theircontribution to an organization’s mission and strategy.FUND RAISING PROJECTAssume you are a member of a class on project management. Each studentwill join a team of five to seven students who will be responsible forcreating, planning, and executing a fund raising project for a designatedcharity. The fund raising project has two goals: (1) raise money for a

page 66worthy cause and (2) provide an opportunity for all team members topractice project management skills and techniques.In addition to completing the project a number of deliverables arerequired to complete this assignment. These deliverables includea. Project proposalb. Implementation planc. Risk management pland. Status reporte. Project reflections presentationf. Project retrospective/auditApproved projects will receive $250 seed money to be reimbursed uponcompletion of the project.“MUST” OBJECTIVESEvery project must meet the “must” objectives as determined by theinstructor. There are four must objectives:1. All projects must be safe, be legal, and comply with university policies.2. All projects must be capable of earning at least $500.3. All projects must be able to be completed within nine weeks.4. All projects must provide an opportunity for every member of the projectteam to experience and learn about project management.Among the factors to consider for the last objective are the extent to whichthere is meaningful work for every member of the team, the degree ofcoordination required, the extent to which the team will have towork with external stakeholders, and the complexity of the project.“WANT” OBJECTIVESIn addition to the must objectives, there are “want” objectives that theinstructor would like to achieve.1. Earn more than $500 for a charity.2. Increase public awareness of the charity.3. Provide a resume-worthy experience for students.

4. Be featured on local TV news.5. Be fun to do.ASSIGNMENTYou are a member of the class priority team in charge of evaluating andapproving fund raising projects. Use the provided proposal evaluation formto formally evaluate and rank each proposal. Be prepared to report yourrankings and justify your decision. You should assume that these projectswould be held at your university or college.FUND RAISING PROPOSALSPROJECT PROPOSAL 1: HOOPS FOR HOPEThe project is a three-on-three basketball tournament to raise money for theDown Syndrome Association. The tournament will consist of threebrackets: co-ed, male, and female teams. There will be a $40 entry fee perteam and additional funds will be derived from the sale of commemorativeT-shirts ($10). Winning teams will receive gift baskets consisting ofdonations from local businesses and restaurants. The event will be held atthe university recreational center.PROJECT PROPOSAL 2: SINGING FOR SMILESThe project will hold a karaoke competition with celebrity judges at apopular campus night spot. Funds will be raised by $5 admission at the doorand a raffle for prizes donated by local businesses. Funds will be donated toSmile Train, an international organization that performs cleft lip surgery at acost of $250 per child. The event will feature pictures of children born withcleft lips, and with every $50 earned a piece of a picture puzzle will beadded until the original picture is covered with a smiling face.PROJECT PROPOSAL 3: HALO FOR HEROESThe project will be a Halo video game competition to be held over theweekend utilizing the college’s big-screen electronic classrooms. Teams offour players will play each other in a single elimination tournament, withthe grand prize being a Sony Play Station 4 donated by a local video gamestore. Entry fee is $24 per team, and individual players will be able to play

page 67in a loser’s bracket for $5. All proceeds will go to the National MilitaryFamily Association.PROJECT PROPOSAL 4: RAFFLE FOR LIFEOrganize a raffle contest. Raffle tickets will be sold for $3 apiece, with thewinning ticket worth $300. Each of the six team members will beresponsible for selling 50 raffle tickets. All profits will go to the AmericanCancer Society.PROJECT PROPOSAL 5: HOLD’EM FOR HUNGEROrganize a Texas Hold’em poker tournament at a campus dining facility. Itwill cost $20 to enter the tournament with a $15 buy-back-in. Prizes include$300, $150, and $50 gift certificates to a large department store. Fiftypercent of the gift certificates will be paid for by entry fees, while theremaining 50 percent is expected to be donated by the store. All players willbe eligible to win two donated tickets to men’s and women’s basketballgames. Funds raised will go to the local county food shelter.PROJECT PROPOSAL 6: BUILD YOUR OWN BOXThe purpose of this project is to raise awareness of the plight of thehomeless. Students will donate $10 to participate in building and living in acardboard city on the university quad for one night. Building materials willbe provided by local recycling centers and hardware stores. Hot soup willbe provided by the team at midnight to all participants. Proceeds go to thelocal homeless shelter.Project Priority Evaluation Form

Design elements: Snapshot from Practice, Highlight box, Case icon: ©SkyDesigns/Shutterstock1 Shenhar, A., and Dov Dvie, Reinventing Project Management (Boston: Harvard BusinessSchool Press, 2007), p. 5.2 MacIntyre, J., “Stroke of Strategy”, PM Network, November 2006, pp. 32–35.

3 PMI, “PMI’s Pulse of the Profession,” Project Management Institute, March 2012, p. 7.4 Smith, D. K., and R. C. Alexander, Fumbling the Future: How Xerox Invented, ThenIgnored the First Personal Computer (New York: Macmillan, 1988).5 For a good, complete discussion on classification schemes found in practice, see:Crawford, L., B. Hobbs, and J. R. Turner, “Aligning Capability with Strategy: Categorizing ofProjects to Do the Right Projects and Do Them Right,” Project Management Journal, vol.37, no. 2 (June 2006), pp. 38–50.6 The original stage-gate model was pioneered by R. G. Cooper in Product Leadership:Creating and Launching Superior New Products (Cambridge, MA: Perseus, 2000).7 See Figure 12.3 for a template for evaluating contractors.8 Matheson, D., and J. Matheson, The Smart Organization (Boston: Harvard BusinessSchool Press, 1998), pp. 203–09.

Patentometrics,” Journal of Technology Management Innovation, vol.7, no. 3 (2012).Raskin, P., et al., Great Transitions: The Promise and Lure of the TimesAhead, www.gtinitiative.org/documents/Great_Transitions.pdf.Accessed 6/3/08.Schwartz, Peter, and Doug Randall, “An Abrupt Climate ChangeScenario and its Implications for United States National Security,”Global Business Network, Inc., October 2003.Shenhar, A., “Strategic Project Leadership: Focusing Your Project onBusiness Success,” Proceedings of the Project Management InstituteAnnual Seminars & Symposium, San Antonio, Texas, October 3–10,2002, CD.Swanson, S., “All Things Considered,” PM Network, February 2011,pp. 36–40.Case 2.1Hector Gaming CompanyHector Gaming Company (HGC) is an educational gaming companyspecializing in young children’s educational games. HGC has justcompleted their fourth year of operation. This year was a banner year forHGC. The company received a large influx of capital for growth by issuingstock privately through an investment banking firm. It appears the return oninvestment for this past year will be just over 25 percent with zero debt!The growth rate for the last two years has been approximately 80 percenteach year. Parents and grandparents of young children have been buyingHGC’s products almost as fast as they are developed. Every member of the56-person firm is enthusiastic and looking forward to helping the firm growto be the largest and best educational gaming company in the world. Thefounder of the firm, Sally Peters, has been written up in Young

page 61Entrepreneurs as “the young entrepreneur to watch.” She has been able todevelop an organizational culture in which all stakeholders are committedto innovation, continuous improvement, and organization learning.Last year, 10 top managers of HGC worked with McKinley Consultingto develop the organization’s strategic plan. This year the same 10 managershad a retreat in Aruba to formulate next year’s strategic plan using the sameprocess suggested by McKinley Consulting. Most executives seem to havea consensus of where the firm should go in the intermediateand long term. But there is little consensus on how this shouldbe accomplished. Peters, now president of HGC, feels she may be losingcontrol. The frequency of conflicts seems to be increasing. Someindividuals are always requested for any new project created. Whenresource conflicts occur among projects, each project manager believes hisor her project is most important. More projects are not meeting deadlinesand are coming in over budget. Yesterday’s management meeting revealedsome top HGC talent have been working on an international business gamefor college students. This project does not fit the organization vision ormarket niche. At times it seems everyone is marching to his or her owndrummer. Somehow more focus is needed to ensure everyone agrees onhow strategy should be implemented, given the resources available to theorganization.Yesterday’s meeting alarmed Peters. These emerging problems arecoming at a bad time. Next week HGC is ramping up the size of theorganization, number of new products per year, and marketing efforts.Fifteen new people will join HGC next month. Peters is concerned thatpolicies be in place that will ensure the new people are used mostproductively. An additional potential problem looms on the horizon. Othergaming companies have noticed the success HGC is having in their nichemarket; one company tried to hire a key product development employeeaway from HGC. Peters wants HGC to be ready to meet any potentialcompetition head on and to discourage any new entries into their market.Peters knows HGC is project driven; however, she is not as confident thatshe has a good handle on how such an organization should be managed—especially with such a fast growth rate and potential competition closer tobecoming a reality. The magnitude of emerging problems demands quickattention and resolution.

page 62Peters has hired you as a consultant. She has suggested the followingformat for your consulting contract. You are free to use another format if itwill improve the effectiveness of the consulting engagement.What is our major problem?Identify some symptoms of the problem.What is the major cause of the problem?Provide a detailed action plan that attacks the problem. Be specific andprovide examples that relate to HGC.Case 2.2Film PrioritizationThe purpose of this case is to give you experience in using a project prioritysystem that ranks proposed projects by their contribution to theorganization’s objectives and strategic plan.COMPANY PROFILEThe company is the film division for a large entertainment conglomerate.The main office is located in Anaheim, California. In addition to the featurefilm division, the conglomerate includes theme parks, home videos, atelevision channel, interactive games, and theatrical productions. Thecompany has been enjoying steady growth over the past 10 years. Last yeartotal revenues increased by 12 percent to $21.2 billion. The company isengaged in negotiations to expand its theme park empire to mainland Chinaand Poland. The film division generated $274 million in revenues, whichwas an increase of 7 percent over the past year. Profit margin wasdown 3 percent to 16 percent because of the poor response to threeof the five major film releases for the year.

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