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Organization Strategy and Project Selection

Why Project Managers Need to Understand Strategy

 Changes in the organization’s mission and strategy
 Project managers must respond to changes with appropriate
decisions about future projects and adjustments to current
 Project managers who understand their organization’s strategy can
become effective advocates of projects aligned with the firm’s

Projects and Strategy
• Mistakes caused by not understanding the role of projects in
accomplishing strategy:
– Focusing on problems or solutions with low strategic priority.
– Focusing on the immediate customer rather than the whole
market place and value chain.
– Overemphasizing technology that results in projects that
pursue exotic technology that does not fit the strategy or
customer need
– Trying to solve customer issues with a product or service
rather than focusing on the 20% with 80% of the value
(Pareto’s Law).
– Engaging in a never-ending search for perfection only the
project team really cares about.
The Strategic Management Process: An Overview
• Strategic Management
– Requires every project to be clearly linked to strategy.
– Provides theme and focus of firm’s future direction.
• Responding to changes in the external environment—
environmental scanning
• Allocating scarce resources of the firm to improve its
competitive position—internal responses to new
– Requires strong links among mission, goals, objectives,
strategy, and implementation.
– Four Activities of the Strategic Management Process

Four Activities of the Strategic Management Process
• Review and define the organizational mission.
• Set long-range goals and objectives.
• Analyze and formulate strategies to reach objectives.
• Implement strategies through projects
Strategic Management Process

Characteristics of Objectives

Project Portfolio Management: The Need for a Strong Project

Priority System
• The Implementation Gap
– The lack of understanding and consensus on strategy among
top management and middle-level (functional) managers
who independently implement the strategy.
• Organization Politics
– Project selection is based on the persuasiveness and power
of people advocating the projects.
• Resource Conflicts and Multitasking
– Multi-project environment creates interdependency
relationships of shared resources which results in the
starting, stopping, and restarting projects.

Benefits of Project Portfolio Management
• Builds discipline into the project selection process.
• Links project selection to strategic metrics.
• Prioritizes project proposals across a common set of criteria, rather
than on politics or emotion.
• Allocates resources to projects that align with strategic direction.
• Balances risk across all projects.
• Justifies killing projects that do not support strategy.
• Improves communication and supports agreement on project
A Portfolio Management System
• Design of a project portfolio system:
– Classification of a project
– Selection criteria depending upon classification
– Sources of proposals
– Evaluating proposals
– Managing the portfolio of projects.
Portfolio of Projects by Type

A Portfolio Management System
• Selection Criteria
– Financial models: payback, net present value (NPV)
– Non-financial models: projects of strategic importance to the
• Multi-Weighted Scoring Models
– Use several weighted selection criteria to evaluate project
Financial Models
• The Payback Model
– Measures the time the project will take to recover
the project investment.
– Uses more desirable shorter paybacks.
– Emphasizes cash flows, a key factor in business.
• Limitations of Payback:
– Ignores the time value of money.
– Assumes cash inflows for the investment period
(and not beyond).
– Does not consider profitability.
• The Net Present Value (NPV) model
– Uses management’s minimum desired rate-of-return
(discount rate) to compute the present value of all net cash
• Positive NPV: project meets minimum desired rate
of return and is eligible for further consideration.
• Negative NPV: project is rejected.

Example Comparing Two Projects: Using Payback Method

Example Comparing Two Projects: Using Net Present Value Method

Nonfinancial Strategic Criteria
• To capture larger market share
• To make it difficult for competitors to enter the market
• To develop an enabler product, which by its introduction will
increase sales in more profitable products
• To develop core technology that will be used in next-generation
• To reduce dependency on unreliable suppliers
• To prevent government intervention and regulation
• To restore corporate image or enhance brand recognition
• To demonstrate its commitment to corporate citizenship and
support for community development.
Multi-Criteria Selection Models
• Checklist Model
– Uses a list of questions to review potential projects and to
determine their acceptance or rejection.
– Fails to answer the relative importance or value of a
potential project and doesn’t to allow for comparison with
other potential projects.
• Multi-Weighted Scoring Model
– Uses several weighted qualitative and/or quantitative
selection criteria to evaluate project proposals.
– Allows for comparison of projects with other potential

Project Screening Matrix

Applying a Selection Model

• Project Classification
– Deciding how well a strategic or operations project fits the
organization’s strategy.
• Selecting a Model
– Applying a weighted scoring model to align projects closer
with the organization’s strategic goals.
• Reduces the number of wasteful projects
• Helps identify proper goals for projects
• Helps everyone involved understand how
and why a project is selected.
Project Proposals
• Sources and Solicitation of Project Proposals
– Within the organization
– Request for proposal (RFP) from external sources
(contractors and vendors)

• Ranking Proposals and Selection of Projects
– Prioritizing requires discipline, accountability, responsibility,
constraints, reduced flexibility,
and loss of power.
• Managing the Portfolio
– Senior management input
– The priority team (project office) responsibilities
Managing the Portfolio System
• Senior Management Input
– Provide guidance in selecting criteria that are aligned with
the organization’s strategic goals
– Decide how to balance available resources among current
• The Governance Team Responsibilities
– Publish the priority of every project
– Ensure that the project selection process is open and free of
power politics.
– Reassess the organization’s goals and priorities
– Evaluate the progress of current projects
Balancing the Portfolio for Risks and Types of Projects
• Bread-and-butter Projects
– Involve evolutionary improvements to current products and
• Pearls
– Represent revolutionary commercial opportunities using
proven technical advances.
• Oysters
– Involve technological breakthroughs with high commercial
• White Elephants
– Showed promise at one time but are no longer viable.

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Project screening Process

Key Terms
Implementation gap
Net present value
Organizational politics
Priority system
Priority team
Project portfolio
Project screening matrix
Project sponsor
Sacred cow
Strategic management process

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Organization Strategy and Culture

Project Management Structures

• Challenges to Organizing Projects
– The uniqueness and short duration of projects relative to
ongoing longer-term organizational activities
– The multidisciplinary and cross-functional nature of projects
creates authority and responsibility dilemmas.
• Choosing an Appropriate Project Management Structure
– The best system balances the needs of the project with the
needs of the organization.

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• Organizing Projects: Functional organization
– Different segments of the project are delegated to
respective functional units.
– Coordination is maintained through normal management
– Used when the interest of one functional area dominates
the project or one functional area has a dominant interest in
the project’s success.
Functional Organizations

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Functional Organization of Projects
• Advantages
1. No structural change
2. Flexibility
3. In-depth expertise
4. Easy post-project transition
• Disadvantages
1. Lack of focus
2. Poor integration
3. Slow
4. Lack of ownership
Project Management Structures
• Organizing Projects: Dedicated Teams
– Teams operate as separate units under the leadership of a
full-time project manager.
– In a projectized organization where projects are the
dominant form of business, functional departments are
responsible for providing support for its teams.

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Dedicated Project Team

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Project Organization: Dedicated Team
• Advantages
1. Simple
2. Fast
3. Cohesive
4. Cross-Functional Integration
• Disadvantages
1. Expensive
2. Internal Strife
3. Limited Technological Expertise
4. Difficult Post-Project Transition
Projectized Organizational Structure

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Project Management Structures
• Organizing Projects: Matrix Structure
– Hybrid organizational structure (matrix) is overlaid on the
normal functional structure.
• Two chains of command (functional and project)
• Project participants report simultaneously to both
functional and project managers.
– Matrix structure optimizes the use of resources.
• Allows for participation on multiple projects while
performing normal functional duties.
• Achieves a greater integration of expertise and project
Matrix Organization Structure

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Division of Project Manager and Functional Manager Responsibilities
in a Matrix Structure

Different Matrix Forms

• Weak Form
– The authority of the functional manager predominates and
the project manager has indirect authority.
• Balanced Form
– The project manager sets the overall plan and the functional
manager determines how work to be done.
• Strong Form
– The project manager has broader control and functional
departments act as subcontractors to the project.

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Project Organization: Matrix Form
• Advantages
1. Efficient
2. Strong Project Focus
3. Easier Post-Project Transition
4. Flexible
• Disadvantages
1. Dysfunctional Conflict
2. Infighting
3. Stressful
4. Slow
What Is the Right Project Management Structure?
• Organization (Form) Considerations
– How important is the project to the firm’s success?
– What percentage of core work involves projects?
– What level of resources (human and physical) are available?
• Project Considerations
– Size of project
– Strategic importance
– Novelty and need for innovation
– Need for integration (number of departments involved)
– Environmental complexity (number of external interfaces)
– Budget and time constraints
– Stability of resource requirements

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Organizational Culture
• Organizational Culture Defined
– A system of shared norms, beliefs, values, and assumptions
which bind people together, thereby creating shared
– The “personality” of the organization that sets it
apart from other organizations.
• Provides a sense of identify to its members.
• Helps legitimize the management system of the
• Clarifies and reinforces standards of behavior.

Key Dimensions Defining an Organization’s Culture

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Identifying Cultural Characteristics
• Study the physical characteristics of an organization.
• Read about the organization.
• Observe how people interact within the organization.
• Interpret stories and folklore surrounding the organization.
Organizational Culture Diagnosis Worksheet
Power Corp.
I. Physical Characteristics:
Architecture, office layout, décor, attire
Corporate HQ is 20 Story modern building—president on top floor.
Offices are bigger in the top floors than lower floors. Formal business
attire (white shirts, ties, power suits, . . . ) Power appears to increase the
higher up you are.
II. Public Documents:
Annual reports, internal newsletters, vision statements
At the heart of the Power Corp. Way is our vision . . . to be the global
energy company most admired for its people, partnership and
performance. Integrity. We are honest with others and ourselves. We
meet the highest ethical standards in all business dealings. We do what
we say we will do.
III. Behavior:
Pace, language, meetings, issues discussed, decision-making style,
communication patterns, rituals
Hierarchical decision-making, pace brisk but orderly, meetings start on
time and end on time, subordinates choose their words very carefully
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when talking to superiors, people rarely work past 6:00 P.M., president
takes top performing unit on a boat cruise each year . . .
IV. Folklore:
Stories, anecdotes, heroines, heroes, villains
Young project manager was fired after going over his boss’s head to ask
for additional funds.
Stephanie C. considered a hero for taking complete responsibility for a
technical error.
Jack S. was labeled a traitor for joining chief competitor after working
for Power Corp. for 15 years.
Implications of Organizational Culture for Organizing Projects
• Challenges for Project Managers in Navigating Organizational
– Interacting with the culture and subcultures of the parent
– Interacting with the project’s clients or customer
– Interacting with other organizations connected to the

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Cultural Dimensions of an Organization Supportive of Project

Key Terms
Balanced matrix
Dedicated project team
Organizational culture
Projectized organization
Project Office (PO)
Strong matrix
Weak matrix
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Defining The Project

Defining the Project

Step 1: Defining the Project Scope
Step 2: Establishing Project Priorities
Step 3: Creating the Work Breakdown Structure
Step 4: Integrating the WBS with the Organization
Step 5: Coding the WBS for the Information System
Step 1: Defining the Project Scope
• Project Scope
– A definition of the end result or mission of the project—a
product or service for the client/customer—in specific,
tangible, and measurable terms.
• Purpose of the Scope Statement
– To clearly define the deliverable(s) for the end user.
– To focus the project on successful completion
of its goals.
– To be used by the project owner and participants
as a planning tool and for measuring project success.

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Project Scope Checklist
1. Project objective
2. Deliverables
3. Milestones
4. Technical requirements
5. Limits and exclusions
6. Reviews with customer
Project Scope: Terms and Definitions
• Scope Statements
– Also called statements of work (SOW)
• Project Charter
– Can contain an expanded version of scope statement
– A document authorizing the project manager to initiate and
lead the project.
• Scope Creep
– The tendency for the project scope to expand over time due
to changing requirements, specifications, and priorities.
Step 2: Establishing Project Priorities
• Causes of Project Trade-offs
– Shifts in the relative importance of criterions related
to cost, time, and performance parameters
• Budget–Cost
• Schedule–Time
• Performance–Scope
• Managing the Priorities of Project Trade-offs
– Constrain: a parameter is a fixed requirement.
– Enhance: optimizing a criterion over others.
– Accept: reducing (or not meeting) a criterion requirement.

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Project Management Trade-offs

Project Priority Matrix

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Step 3: Creating the Work Breakdown Structure
• Work Breakdown Structure (WBS)
– A hierarchical outline (map) that identifies the products and
work elements involved in a project.
– Defines the relationship of the final deliverable
(the project) to its sub-deliverables, and in turn,
their relationships to work packages.
– Best suited for design and build projects that have tangible
outcomes rather than process-oriented projects.

Hierarchical Breakdown of the WBS

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How WBS Helps the Project Manager
• Facilitates evaluation of cost, time, and technical performance of
the organization on a project.
• Provides management with information appropriate to each
organizational level.
• Helps in the development of the organization breakdown
structure (OBS). which assigns project responsibilities to
organizational units and individuals
• Helps manage plan, schedule, and budget.
• Defines communication channels and assists in coordinating the
various project elements.

Work Breakdown Structure

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Work Packages
A work package is the lowest level of the WBS.
-It is output-oriented in that it:
1. Defines work (what).
2. Identifies time to complete a work package (how long).
3. Identifies a time-phased budget to complete a work package
4. Identifies resources needed to complete a work package
(how much).
5. Identifies a person responsible for units of work (who).
6. Identifies monitoring points (milestones) for measuring
Step 4: Integrating the WBS with the Organization
Organizational Breakdown Structure (OBS)
– Depicts how the firm is organized to discharge its work
responsibility for a project.
• Provides a framework to summarize organization work unit
• Identifies organization units responsible for work packages.
• Ties organizational units to cost control accounts.

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Integration of WBS and OBS

Step 5: Coding the WBS for the Information System

• WBS Coding System
– Defines:
• Levels and elements of the WBS
• Organization elements
• Work packages
• Budget and cost information
– Allows reports to be consolidated at any level in the
organization structure
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PBS for Software Development Project

Responsibility Matrices
• Responsibility Matrix (RM)
– Also called a linear responsibility chart.
– Summarizes the tasks to be accomplished and who is
responsible for what on the project.
• Lists project activities and participants.
• Clarifies critical interfaces between units and individuals that need
• Provide a means for all participants to view their responsibilities
and agree on their assignments.
• Clarifies the extent or type of authority that can be exercised by
each participant.

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Responsibility Matrix for a Market Research Project

Responsibility Matrix for the Conveyor Belt Project

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Stakeholder Communications

Project Communication Plan

• What information needs to be collected
and when?
• Who will receive the information?
• What methods will be used to gather
and store information?
• What are the limits, if any, on who has access to certain kinds of
• When will the information be communicated?
• How will it be communicated?

Information Needs
• Project status reports
• Deliverable issues
• Changes in scope
• Team status meetings
• Gating decisions
• Accepted request changes
• Action items
• Milestone reports

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Developing a Communication Plan
1. Stakeholder analysis
2. Information needs
3. Sources of information
4. Dissemination modes
5. Responsibility and timing
Shale Oil Research Project Communication Plan

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Key Terms
Cost account
Organization breakdown structure (OBS)
Priority matrix
Process breakdown structure (PBS)
Project charter
Responsibility matrix
Scope creep
Scope statement
WBS dictionary
Work breakdown structure (WBS)
Work package

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