Thursday 9 December 2021

How do i decide if a project is worth executing?

An organization that features a centralized project management office and requires all project managers to:

  • Start the project with the customer
  • Provide the customer with high-level requirements documentation
  • Approximate solutions and estimates
  • Formal project presentation to the technical committee

Before we go any further, here are two things to know:

  • In this company, almost all projects of the project manager are internal
  • Technical committee consists of internal managers

The sole purpose of the technical committee and pm presentations is to ensure that the project is worthwhile (because everything is internal and actually represents a transfer of funds from one department to another, rather than actual revenue, which saves costs) and that the technology is not used in long-term solutions when the technology is phased out or not supported in the near future.

So, in a sense, the technical committee is basically the "pass/pass" decision point early in the project. although this is early in the project, it is also a good time to ask:

  • Is this problem worth solving?
  • is there a potential solution?
  • Do we solve this problem in the right way?
  • Is this consistent with our company's overall goals and mission?

How to decide whether a project is executed

Reasonableness and feasibility

In the above four questions, hidden on the question of rationality and feasibility of the discussion. whether you serve an internal or external customer base, you should address both issues first. otherwise, you will waste time and money on problems that you should or cannot solve.

Rationality, especially financial rationality, is difficult to assess at the demand stage because there is not much understanding of the project. still, it's wise to try to assess whether you have a reason to continue with the project. you can do this by performing a simple cost-benefit analysis.

The benefits section is relatively easy to estimate: it is the value of meeting demand. in many cases, this is simply calculating how much today's problem will cost. estimating the cost of a solution is more difficult because you're not sure what to do or how to do it.

One approach you might want to consider is to reverse financial calculations. this allows you to determine the maximum amount that can be spent on a solution. if any of the solutions you propose cannot be implemented with less than that amount of money, the project will ultimately be unreasonable, at least from a purely financial point of view.

The second question, feasibility, boils down to a basic question: do you believe there is a solution? in other words, can the problem be solved? this step is called verifying feasibility. there may be a lot of subjectivity in this step, and you should rely heavily on the judgment of the subject matter expert (sme).

Find the best solution

In reality, at this point, the most realistic thing you want to be sure of is that the possibility of a solution is considered to exist. for good reason, what you need to do at this point is to avoid spending additional resources and money on problems where there is no reasonable solution.

Next, we'll discuss how to determine the best solution for your project and the need to move on. we'll discuss how you can begin reviewing alternative solutions to project problems and determine the best solution to move on.

Once you fully understand the need and determine that it is reasonable and feasible to meet it, you are ready to determine the best way to meet it. although i use the word "you," it does take a lot of input to do this step correctly. if you are fortunate enough to be involved in this phase of the project development, you should actively build a team that can work with you from now on.

Identify alternatives

The process of determining the optimal approach to meet the needs of the project begins with the generation of a set of potential solutions.

This process can be greatly enhanced by:

  • Teamwork
  • Appropriately include subject matter experts and stakeholders
  • Use brainstorming techniques
  • Further development is limited to reasonable alternatives
  • The best choice

Obviously, you can't brainstorm every idea. after soliciting all reasonable alternative solutions, the project team needs to reduce the list to the only ones that merit further development, investigation, and definition. you can reduce the list by comparing each alternative to a predetermined standard. this is where demand documentation begins to add significant value.

The process of selecting the optimal solution begins with assessing the most critical aspects of each alternative solution that meet the project's needs, such as budget constraints or strategic adjustments. you may also want to use other requirements-based considerations, such as the likelihood of technical success or the expected impact on an existing product.

This preliminary screening allows you to shorten the possible alternative solution to a controlled number -- i suggest two to five. at this point, the selection process becomes more rigorous. each potential alternative should be evaluated using two basic criteria: financial and non-financial.

Now, let's try to find the best solution using financial standards, such as npv and cost-benefit analysis, and learn more about using non-financial standards.

Use financial criteria for project selection

Companies that use project selection and justification often rely on financial calculations as a comparison tool and as a fundamental barrier to management approval. basic financial assessment models, such as financial analysis, business case, project finance, or cost/benefit analysis, typically include a combination of these four basic metrics: npv, irr, payback period, and cash gap.

Net present value (npv) - calculating the npv of a project answers the question: how much does the project make (or save)? it is the present value of all expected future cash flows for a project in us dollars. this is broadly similar to the concept of profit.

Internal rate of return (irr) - calculating irr answers the question: how quickly will money be returned? this is a calculated percentage in which wealth will be returned in the project. this is roughly equivalent to the effective rate of return on a savings account.

The payback period - calculating this indicator (also known as the capital turnaround time or break-even point) answers the question: when will the initial investment (the amount spent on the project) be recovered through the proceeds? usually expressed in months or years.

Cash gap - calculating the cash gap (also known as maximum exposure) answers the question: what is the maximum amount we invest at any given point in time? it is expressed in dollars.

Take advantage of the help of project management software

Our projects are the sum of all the decisions we've made - budget decisions, schedule decisions, scope decisions, needs, team members' choices. therefore, it is important to use powerful tools that demonstrate a single version of fact to your team during project planning and execution.

Innovative Techniques PM project management software is such a solution. In this system, planning and execution are inseparable, and updates are synchronized in real time. A project has and only one current plan, all responsibilities are divided and execution status is clear, and team members can share the latest project progress in real time.

Innovative Techniques provides effective project applications, assessments and strategic development management mechanisms to ensure that the project application passes a comprehensive and rigorous assessment based on three areas:

  • Based on real market demand
  • Based on reasonable ROI
  • Whether the responsible organization has the appropriate project personnel and experience

In addition, Innovative Techniques provides real-time measurement mechanisms that enable real-time tracking of all intermediate results that occur against a target. The early selection of the project fully reflects the wisdom of a research and development project, but also forms the framework of project execution management.

In terms of resource assessment, Innovative Techniques PM gives a clear view of all resource requirements and dependencies, helping the project team manage them in an organized manner.

For risk monitoring, Innovative Techniques can help you identify the probability of risk, the priority of risk management, and how it is handled. Summarize all relevant issues and risks and their resolutions in real time to manage all issues and risks in a unified and orderly manner.

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