Project Selection Procedures – A Cross-Industry Sampler
The “art” and science of selecting projects is one that organizations take extremely seriously. Good project selection can result in creating a portfolio of profitable ventures while poor choices, even if well managed through their development, are costly and do most companies little good. Firms in a variety of industries have developed highly sophisticated methods for project screening and selection in order to best ensure that the projects they choose to fund offer the best promise of success. As part of this screening process, organizations often evolve their own particular methods, based on technical concerns, available data, and corporate culture and preferences. To give a sense of the lengths to which some organizations go with project selection, the following list offers examples of a diverse collection of companies and their project screening techniques:
- Hoechst AG, a pharmaceutical firm, uses a scoring portfolio model with 19 questions in five major categories when rating project opportunities. The five categories include: probability of technical success, probability of commercial success, reward to the company, business strategy fit, and strategic leverage (ability of the project to employ and elevate company resources and skills). Within each of these factors are a number of specific questions which are scored on a 1 – 10 scale by management.
- The Royal Bank of Canada has developed a scoring model to rate its project opportunities. The criteria for their portfolio scoring include project importance (strategic importance, magnitude of impact, and economic benefits) and ease of doing (cost of development, project complexity, and resource availability). Expected annual expenditure and total project spending are then added to this rank-ordered list to prioritize the project options. Decision rules are used (e.g., projects of low importance that are difficult to execute get a “no go” rating).
- The Weyerhaeuser corporate R&D program has put processes in place to align and prioritize their R&D projects. The program has three types of activities: technology assessment (changes in external environment and impact to the company); research (building knowledge bases and competencies in core technical areas); and development (development of specific commercial opportunities). Four key inputs are considered when establishing priorities: significant changes in the external environment; long-term future needs of lead customers; business strategies, priorities, and technology needs; and corporate strategic direction.
- Mobil Chemical uses six categories of projects to determine the right balance of projects that will enter their portfolio: 1) cost reductions and process improvements; 2) product improvements, product modifications, and customer satisfaction; 3) new products; 4) new platform projects and fundamental/breakthrough research projects; 5) plant support; and 6) technical support for customers. Senior management reviews all project proposals and determine the division of capital funding across these six project types. One of their key decision variables involves a comparison of “what is” with “what should be.”
- At 3M’s Traffic Control Materials Division, during project screening and selection, management uses a project viability chart to score project alternatives. As part of the profile and scoring exercise, personnel must address how the project accomplishes strategic project objectives and critical business issues affecting a specific group within the target market. Projected project return on investment is always counterbalanced with riskiness of the project option.
- Exxon Chemical’s management begins evaluating all new project proposals in light of the business unit’s strategy and strategic priorities. Target spending is decided according to the overall project mix portfolio. As the year progresses, all projects are reprioritized using a scoring model. As significant differences between projected and actual spending are uncovered, the top management group makes adjustments for next year’s portfolio.