From: Michael Cook [mailto:
michaelscook@hotmail.com]
Jay Warner asked for some information on project selection processes,
and
Fred Nickols added some cogent comments. Fred pointed some of the
difficulties with cost/benefit and ROI analyses: bogus numbers that
reflect
the biases of whomever is defending/attacking the proposed project. To
round out these rational, economic-based methods, payback (how soon will
we
recoup the development costs and begin to make a profit) is another
analytic
tool. Presumably, when faced with a choice, you select the project with
the
earliest payback. But, what if the alternatives have a higher overall
ROI,
or a better cost/benefit ratio? And, of course, payback suffers from
the
same problem of bogus numbers as does ROE and cost/benefit.
I have also seen discussion of the MiniMax theory (minimize the maximum
loss--never take on a project, that if unsuccessful, would result in
bankruptcy).
Having worked at consulting firms for over 15 years in which proposal
decisions--which projects to bid, and at what price--were a weekly, or
even
daily decision, a successful selection process is more of a decision
tree
than anything else.
First, do we have the capability of performing the project--do we have
the
people, material, $, etc. to be successful *given what we are already
doing,
AND our likelihood of winning other work we've already bid on/selected*?
If
we don't have the resources could we get them by the time we would have
to
start?
Second, can we perform the project without destroying the company, or
the
staff morale? For example, we might win a project that would require
everyone to travel all of the time, but would they do that, or would
they
quit?
Third, can we make a profit? If so, is it more profit than something
else
we might do? This is the only really rational economic step, and, of
course
it can suffer from the bogus numbers problem. But generally, profit is
pretty simple--will we make money?
Fourth, is there some other benefit that distinguishes this project from
others, such as market entry, market share, standing in the community,
or
large potential future profits? For some firms, "fun" or professional
interest might also be included here.
Finally, is there some special negative/cost that distinguishes this
project? For example, could it make current clients/customers unhappy
or
could it result in conflict with external groups ("Hey kids, lets open a
hazardous waste landfill in _______")?
And after all that, you go with the one that the senior vice president
wanted to do all along....
Michael S. Cook, Ph.D., PMP
Colleague Consulting
8318 Gentle Brook Court
Laurel, Maryland, USA 20723
301-498-6719
Technical and management training and performance improvement