Project Selection and Prioritization

There is no lack of project ideas in organizations today. Rather, there seems to be a problem of too
many ideas, as a long pipeline of proposals wait in queue, competing for attention. Given the large
scale and complexity of projects, as well as constraints in resources such as time and budget, the
challenge is to identify the perfect combination of projects that can fetch highest returns.

What Is Project Selection?

Project selection is the process of evaluating and choosing projects that both align with an
organization’s objectives and maximize its performance.

Prioritization refers to ranking or scoring projects, based on certain criteria, to determine the order
of execution. However, the terms “prioritization” and “selection” are often used interchangeably, as
the two processes are intertwined.

Selection and prioritization are important elements of project portfolio management (PPM), an
approach that connects the execution of projects with high-level business strategy. As per the 2017
PMI report, 37% of project failures are attributed to a lack of clearly defined objectives and discipline
when implementing strategy. This demonstrates how crucial the PPM function is.

PPM implementation can be time consuming, which is why establishing a project management office
(PMO) that works on selection and prioritization can be extremely beneficial

Project Selection Methods for Project Managers

When you have a number of interesting and challenging projects to choose from, finding a project
that is the right fit for your team’s skill set, level of competence, and has the best chance of success is
the first step in effective project management. Project Selection Methods offer a set of time-tested
techniques based on sound logical reasoning to choose a project and filter out undesirable projects
with a very low likelihood of success. Project selection methods are an important concept for
practicing project managers and aspirants preparing for the PMP® exam alike. In this article, we will
discuss the following project selection methods in detail:

Benefit measurement methods Benefit/cost ratio Economic model

Scoring model Payback period Net present value

Discounted cash flow Internal rate of return Opportunity cost

Constrained optimization methods Non-financial considerations

Benefits of Project Selection and Prioritization

Project selection and prioritization are essential processes that help organizations choose and focus
on the most important projects that align with their strategic objectives. Here are some benefits of
project selection and prioritization:

1. Maximizing resources: Organizations can allocate their limited resources more effectively by
selecting and prioritizing the right projects. This ensures that resources are well-spent on
projects that are less important or less likely to succeed.
 2. Strategic alignment: It helps organizations ensure that their projects align with their overall
strategy. This ensures that the organization is moving in the right direction and progressing
towards its long-term goals.

3. Improved decision-making: It involves analyzing and comparing different project options.

This helps organizations make more informed decisions about projects to pursue and avoid.

4. Risk management: It involves assessing the risks associated with different projects. This
helps organizations identify and mitigate potential risks, ensuring that projects are
completed on time, within budget, and with minimal risk.

5. Increased success rates: Organizations increase their chances of success by selecting and
prioritizing the most critical projects. This is because they can focus their resources and
efforts on the projects that are most likely to deliver value and achieve their goals.

6. Enhanced communication and collaboration: It involves input from various stakeholders,

including executives, project managers, and team members. This helps promote
communication and collaboration among different parts of the organization, leading to
better outcomes and greater buy-in from stakeholders.

Who Does the Project Selection Process?

The project selection process can be done by different stakeholders, depending on the organization's
size, structure, and culture. In some organizations, the project selection process may be the
responsibility of senior management or an executive team. In others, the project selection process
may be delegated to project managers or team leaders.

Role of Project Manager in Project Selection

A project manager plays a critical role in the project selection process. Here are some of the roles
they are assigned:

 They are responsible for identifying potential projects and evaluating their feasibility.
However, the final decision on project selection may not be entirely up to the project
manager.

 They are responsible for providing input and recommendations based on their expertise and
knowledge of the organization's project management practices.

 They may also have to work with other stakeholders to prioritize projects.

Common Management Focus Areas in Project Selection.

To effectively evaluate and prioritize potential projects, there are several common management
focus areas that stakeholders typically consider. Here are some of the most common management
focus areas in project selection:

 Strategic Alignment: The project should match the organization's overall strategy. It should
contribute to the organization's long-term objectives and provide a significant return on
investment.

 Feasibility: The project should be feasible regarding time, budget, and resources. The project
team should be able to complete the project within the given timeframe, budget, and
available resources.
  Risk Assessment: The project should be evaluated for risks that could impact its success.
Risks may include budget overruns, delays, scope creep, or other factors hindering the
project's success.

 Benefit Analysis: The project should provide benefits that justify the investment. The
benefits may be financial or non-financial, and stakeholders should consider the short-term
and long-term impact of the project.

 Resource Allocation: The project should be evaluated for resource availability and allocation.
The project team should have the necessary skills, experience, and resources to complete
the project successfully.

 Sustainability: The project should be evaluated for its sustainability, including the long-term
impact on the environment and social and economic factors.

 Market Potential: The project should be evaluated for its potential impact on the market. It
should be relevant to the target audience and provide a competitive advantage.

 Organizational Capability: The project should be evaluated based on the organization's

capability to manage it successfully. The organization should have the systems, processes,
and people to deliver the project successfully.

 Stakeholder Engagement: The project should be evaluated for its potential to engage
stakeholders, including customers, employees, partners, and other relevant stakeholders.

 Alignment with Regulatory Requirements: The project should be evaluated for its alignment
with regulatory requirements and compliance with legal, ethical, and social standards.

Project Selection Criteria.

Project selection criteria refer to the factors stakeholders consider when evaluating potential projects
to determine which ones to undertake. These criteria serve as guidelines for decision-making and
help ensure that the organization selects projects that agree with its target idea. Without a selection
process, an organization may invest in projects with little value to no value or those that do not meet
their long-term goals.

Project Selection Methods.

Consider this scenario: the organization you are working for has been handed a number of project
contracts. Due to resource constraints, the organization can’t handle all the projects at once, so they
need to decide which project(s) will maximize profitability.

This is where project selection methods come into play. There are two categories of project selection
methods:

1. Benefit Measurement Methods

2. Constrained Optimization Methods
Although these methods are time-consuming, employing they are essential for an effective business
plan. There are a variety of documented methods for selecting a project, but the basic thumb rule is:
for small projects that aren’t very complex, the Benefit Measurement Model is useful, whereas if it’s
a large, complex project, the Constrained Optimization Method is a better fit. Let’s take a look at
both these methods in further detail.

Various Project Selection Methods

Benefit Measurement Methods

1. Benefit Measurement is a project selection technique based on the present value of

estimated cash outflow and inflow. Cost benefits are calculated and then compared to other
projects to make a decision. The techniques that are used in Benefit Measurement are as
follows:

2. Benefit/Cost Ratio - Cost/Benefit Ratio, as the name suggests, is the ratio between the
Present Value of Inflow or the cost invested in a project to the Present Value of Outflow,
which is the value of return from the project. Projects that have a higher Benefit-Cost Ratio
or lower Cost-Benefit Ratio are generally chosen over others.
3. Economic Model - EVA, or Economic Value Added, is the performance metric that calculates
the worth-creation of the organization while defining the return on capital. It is also defined
as the net profit after the deduction of taxes and capital expenditure. If there are several
projects assigned to a project manager, the project that has the highest Economic Value
Added is picked. The EVA is always expressed in numerical terms and not as a percentage.

4. Scoring Model in Project Management - The scoring model in project management is an

objective technique: the project selection committee lists relevant criteria, weighs them
according to their importance and their priorities, then adds the weighted values. Once the
scoring of these projects is completed, the project with the highest score is chosen.

5. Payback Period - Payback Period is the ratio of the total cash to the average per period cash.
It is the time necessary to recover the cost invested in the project. The Payback Period is a
basic project selection method. As the name suggests, the payback period takes into
consideration the payback period of an investment. It is the time frame that is required for
the return on an investment to repay the original cost that was invested. The calculation for
payback is fairly simple. When the Payback period is used as the Project Selection Method,
the project that has the shortest Payback period is preferred since the organization can
regain the original investment faster. There are, however, a few limitations to this method:

 It does not consider the time value of money.

 Benefits accrued after the payback period are not considered; it focuses more on the
liquidity while profitability is neglected.
 Risks involved in individual projects are neglected.

6. Net Present Value - Net Present Value is the difference between the project’s current value
of cash inflow and the current value of cash outflow. The NPV must always be positive. When
picking a project, one with a higher NPV is preferred. The advantage of considering the NPV
over the Payback Period is that it takes into consideration the future value of money.
However, there are limitations of the NPV, too:

 There isn’t any generally accepted method of deriving the discount value used for the
present value calculation.
 The NPV does not provide any picture of profit or loss that the organization can make by
embarking on a certain project.
 For more details on the NPV and how to use the NPV as a tool to filter projects out,
here’s an insightful article on calculating the opportunity costs for projects.

7. Discounted Cash Flow - It’s well-known that the future value of money will not be the same
as it is today. For example, $20,000 won’t have the same worth ten years from now.
Therefore, during calculations of cost investment and ROI, be sure to consider the concept of
discounted cash flow.

8. Internal Rate of Return - The Internal Rate of Return is the interest rate at which the Net
Present Value is zero—attained when the present value of outflow is equal to the present
 value of inflow. Internal Rate of Return is defined as the “annualized effective compounded
return rate” or the “discount rate that makes the net present value of all cash flows (both
positive and negative) from a particular investment equal to zero.” The IRR is used to select
the project with the best profitability; when picking a project, the one with the higher IRR is
chosen.

When using the IRR as the project selection criteria, organizations should remember not to
use this exclusively to judge the worth of a project; a project with a lower IRR might have a
higher NPV and, assuming there is no capital constraint, the project with the higher NPV
should be chosen as this increases the shareholders’ profits.

9. Opportunity Cost - Opportunity Cost is the cost that is given up when selecting another
project. During project selection, the project that has the lower opportunity cost is chosen.

10. Constrained Optimization Methods - Constrained Optimization Methods, also known as the
Mathematical Model of Project Selection, are used for larger projects that require complex
and comprehensive mathematical calculations. The techniques that are used in Constrained
Optimization Methods are as follows:

These topics, however, are not discussed in detail in the PMP® certification. For the exam, all that is
necessary to know is that this is the list of Mathematical Model techniques that are used in Project
Selection.

11. Non-Financial Considerations - There are non-financial gains that an organization must consider;
these factors are related to the overall organizational goals. The organizational strategy is a major
factor in project selection methods that will affect the organization’s choice in the choice of project.
Customer service relationships are chief among these organizational goals. An important necessity in
today’s business world is to build effective, cordial customer relationships.

Other organizational factors may include political issues, change of management, speculative
purposes, shareholders’ requests, etc.

Project Selection Criteria.

Determining project selection criteria is a critical process that requires careful consideration and
stakeholder input. To effectively assess project selection criteria, it is important to keep in mind the
following points:

 Define the Organization's Goals and Objectives: What is the organization’s long-term vision
and mission?
 Understand The Organization’s Environment: What are the organization’s key business
drivers? What are its strengths and weaknesses?
 Review Industry Best Practices: Look at case studies and research papers, or consult with
experts in the field.
 Evaluate Internal Factors: Recognize the organization's resources, capacity, and market
position.
 Evaluate External Factors: Understand the economic conditions, competitive landscape, and
regulatory requirements.
 Develop a selection framework that outlines each criterion and weighs them according to
importance. This will provide a clear and transparent process for evaluating potential
projects and selecting the best ones.

What is the Project Selection Process?

The project selection process involves evaluating potential projects to determine which ones are in
the organization’s best interest. By following a structured project selection process, organizations can
ensure that they invest their resources in projects that have the highest potential for success and
deliver the most value to stakeholders.

What are the Steps in Project Selection?

1. Identify Potential Projects

The first step in the project selection process is to search for projects to shortlist. Here are some
ways to identify potential projects:

 Customer feedback: Analyze customer feedback to identify pain points, needs, and areas
where the organization could improve its products or services.
 Market research: It helps identify market trends, competitors, and potential growth
opportunities.
 Brainstorming sessions: Internal ideas and innovations should be encouraged to make new
products, services, or processes that could improve the organization's operations.
 Industry benchmarks: Comparing industry standards helps identify potential areas for
improvement and opportunities for growth.
 Technology advancements: Search for the latest developments in tech and identify
opportunities to use them.

2. Compare the Projects

Comparing projects is an important step in the selection process, as it allows organizations to

evaluate each project's potential benefits, costs, and risks. By comparing projects using various
selection methods, organizations can select the projects with the highest potential for success.

3.Analyse Your Findings

 Analysing the findings from a project selection process involves evaluating the accuracy and
completeness of the data, identifying patterns and trends, developing (KPIs) Key Performance
Indicators, evaluating risks and benefits, prioritizing projects, and developing an action plan. By
thoroughly analysing the findings, organizations can decide which projects to pursue.

4. Select a Project

Once you have considered these factors, you can select a project that aligns with your organization's
strategic goals, is feasible, has potential benefits that outweigh the risks and costs, and addresses a
real need or opportunity in the market.

Project Selection Models.

Project selection models are analytical tools and techniques used to evaluate and compare potential
projects to choose the option that best serves the long-term interests of the business. These models
use quantitative and qualitative data to assess and prioritize projects based on various criteria.

 Comparative Benefit: Projects that offer a greater comparative benefit to the organization
are given priority over others. This criterion is based on the project's potential benefits, such
as increased revenue, cost savings, or improved efficiency, compared to other available
projects.
 Competitive Necessity: In highly competitive markets, organizations may prioritize projects
that help them maintain their competitive advantage. This criterion evaluates the potential
impact of a project on the organization's market position, including market share, pricing,
and customer loyalty.
 Operating Necessity: Some projects are necessary to maintain or improve the day-to-day
operations of an organization. This criterion evaluates projects that address system upgrades,
process improvements, or risk management.
 Product Line Extension: Organizations may prioritize projects that extend their product
lines or enter new markets. This criterion evaluates projects introducing new products or
services, expanding existing offerings, or entering new markets.
 Sacred Cow: Projects with strong support from key stakeholders may be prioritized based
on their sacred cow status, even if they don't meet other selection criteria. This criterion
evaluates the level of support for a project from influential stakeholders, such as top
executives or major investors.

Conclusion
Project Selection may be carried out in a number of ways. It is best for an organization to try different
project selection methods and consider a wide range of factors before choosing a project to be as
certain as possible that the best decision is made for the company.