1.7 Project Selection Methods

Now that we understand that the project selection process requires thoughtful evaluation, participation, and support from various key stakeholders from inside and outside the organization, let us look at three categories of project selection and the various methods within each category. The three project selection categories are as follows:

  1. Qualitative Selection Method: not based on numbers, calculated numerical evaluation, or analysis

  2. Quantitative Selection Method: based on numbers and often involves formulas and software to compare and analyze data and to prioritize and select projects

  3. Mixed Selection Method: based on both qualitative and quantitative characteristics

Selecting and prioritizing projects are related endeavors. An organization may have twenty projects it wishes to complete. Each, in concept, is deemed to be a valid improvement project. Due to limited resources, it is not possible to complete all projects at once. Once a project has been verified as a necessary project, the next decision is to choose which project will be prioritized first, second, and third, and which project will be lower in priority. During this process, some projects may be eliminated.

Qualitative Selection Methods

There are many qualitative selection methods. Below are a few common ones to consider.

  1. Sacred Cow: These are pet projects advocated by senior executives of an organization. These projects may not be economically feasible and may not produce a return on investment, improve the organization, or align with organizational strategic objectives. However, sacred cow projects will be initiated because someone in a position of authority is mandating the project.

  2. Competitive Necessity: “Compete or die” is a phrase sometimes heard in business. Organizations may find themselves in a position where their industry has been disrupted by a new technology or a business model introduced by a competitor. In these cases, all leaders in that industry must stop current initiatives to urgently pivot their organizations in a direction that will allow them to successfully compete in the new market landscape. Projects that align with that new imperative will be prioritized. Tesla, with its disruptive line of all-electric automobiles, has caused the entire auto industry to pivot away from internal combustion and hybrid vehicles to those that are all-electric (EV). In most cases, projects that support EV have been prioritized while projects based on legacy technology have been defunded.

    In the age of COVID-19, many companies around the world have been forced to pivot both as a matter of operational survival and to achieve a competitive advantage. Diagnostics companies, such as Exact Sciences, had to initiate new projects that focused on diagnosing COVID-19 at the expense of the other product development and improvement initiatives they had initiated prior to the pandemic. Pharmaceutical companies, such as Gilead and Moderna, were faced with a competitive imperative and had to pivot and reallocate resources to projects that promote the strategic objective of being the first to introduce a COVID-19 vaccine.

  3. Comparative Selection Methods

    1. The Delphic Method

    2. The Weighted Scoring Method

The Delphic Method

The Delphic Method was developed in Project RAND during the 1950–1960s by Olaf Helmer, Norman Dalkey, and Nicholas Rescher. This method assumes that the decisions from a structured group of experts are more accurate than those from unstructured groups.1 For this method, a panel of independent external experts review and rank a list of selection criteria or projects. The rankings are consolidated into groups and justification for each rank is discussed among the panel. The experts continue to rank until agreement is reached by some predefined criteria, such as majority.

The Weighted Scoring Method

The Weighted Scoring Method utilizes numbers but is widely considered qualitative because it is subjective. Numbers are used to rank choices, and percentages are used to represent which criteria are subjectively more important than others. An example of this selection method is represented below in Figure 1.11:

Figure 1.11: Selection Method Projects

In the above example, three competing projects are being considered for an improvement. Only one project will be selected. The first step is to agree on the criterion these projects will be considered against. The number of criteria chosen is discretionary. In this case, cost, time, and quality are the selected criteria. Next, the importance of each criterion is decided on a percent scale. It is decided that cost is the most important of the three, and cost is assigned a weight of 50%. Quality and Time are less important, and each is assigned a weight of 25%. The next task is to score each criterion on a scale of 1 to 5 for each project, with five (5) being most favorable and one (1) being least favorable. Project A receives a score of 1, 1, and 5, respectively. Therefore, A is expected to be an expensive project that will take a long time but produce a high-quality project. Project B receives a score of 5, 4, 1, respectively, and is expected to be low-cost with a short lead-time but to produce a low-quality product. Project C receives a score of 3, 2, 3, respectively, and will be of medium expense, take longer than Project B but not as long as Project A, and will produce a project quality that is considerably better than B but not as good as A.

Once scores are entered, the weights will be applied to each criterion for each project. In the final analysis, Project B is selected because it has the highest weighted score.

In an alternative scenario, Projects A, B, and C may be distinct projects that are being considered and require prioritization. In this instance, a threshold may be set, above which the project is approved and below which it is not approved. Assuming that this threshold is set at 2.5, Project A would not be approved. Project B would have top priority, followed by Project C.

Other qualitative selection methods to consider include Affinity Diagrams, the Multi-criteria Decision Analysis model, and the Decision Matrix.

Quantitative Selection Methods

There are many quantitative selection methods. Below are a few common ones to be aware of.

  1. Present Value (PV): This method is the current value of future cash flows. The formula to calculate PV is

    PV = FV/(1+r)n
    PV = Present Value
    FV = Future Value
    r = Interest Rate
    n = Number of time periods

    For project selection, the higher the PV number, the better.

  2. Net Present Value (NPV): This method takes the PV amount and subtracts the cost of the initial and ongoing investments. The higher the NPV number, the better.

  3. Future Value (FV): This method is the value of a current asset at a future date based on an assumed rate of growth. The higher the FV number, the better.

  4. Payback Period: This method calculates how soon you will recapture your investment and begin making a profit. The lower the number, the better.

  5. Benefit-Cost Ratio: This method compares the revenue (benefit) of a project with the amount invested (cost) in the project. The numerator is always the benefit and the denominator is the cost. Any ratio greater than 1.0 will be a profitable project. The higher the ratio, the better.

Other quantitative selection methods include Constrained Optimization Methods and the Internal Rate of Return (IRR).

Mixed Selection Methods

There are many mixed quantitative selection methods. Below are two for consideration.

  1. Balanced Portfolio Method: This method combines both qualitative and quantitative factors to select a project. The qualitative factor for this method is Risk. For this selection method, there will be a return threshold that is a minimum return on investment criterion, below which a project is not approved. There will also be a risk threshold. Projects that fall above the return threshold and above the risk threshold are high-priority projects.

    Figure 1.12: Balanced Portfolio Method

  2. Powell Barkhi: This method is like the Balanced Portfolio, except the horizontal x-axis is “Fuzzy” benefits instead of Risk. Fuzzy benefits may be any combination of risk, goodwill, social capital, brand awareness, or other qualitative criteria. On the vertical y-axis can be any of the numerical return factors—PV, NPV, ROI, FV, or IRR.

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