04. Mastering Project Management-6 Economic Measures for Choosing the Right Project

Have you ever been assigned a project and wondered, "Why am I working on this?" In this episode, seasoned project manager Brittany Wilkins delves into the importance of understanding why and how projects are selected. She explains why this knowledge is crucial for project managers. Project Management Masterclass is dedicated to teaching listeners the fundamentals needed to achieve project success.

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Welcome to Project Management Masterclass hosted by Brittany Wilkins. Whether you're a seasoned project manager looking to sharpen your skills or a newcomer eager to learn the ropes, this podcast is your ultimate guide to mastering the art and science of project management.  In each episode, we dive deep into the world of project management, bringing you insights, practical tips, and real-life success stories. Get ready to elevate your project management game.

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Transcript

Thanks for tuning into Project Management Masterclass. I'm your host Brittany Wilkins. I would like to open today's show with a question for those of you listening what do you find most challenging about project management? I want to hear from you. Click the link in the show notes and send me text. 

For me when I started out on my project management journey it was understanding how/why projects are selected. In today's show I will be discussing economic measures for project selection.

In many cases a project manager is not involved in project selection process. However it's important for a project manager to know people's history.  For one the project teams you lead along with key contributors will look to you to explain the context of what is the deliverable we're trying to achieve.

Many team members are not 100% dedicated to the project, you're borrowing their time. It's important to explain the "why" and what's in it for them. Second knowing the project history is important for understanding how the project is aligned to strategic objectives.

For example as a project manager you need to know if your project:

1. Was selected to establish a new area of business.
2. Was it implemented to meet regulatory requirements or compliance requirements
3. Was it chosen that provides a solution to a problem that does not currently exist within the organization. 

Going beyond a broad perspective one can learn and analyze projects based upon these six economic measures.

1. The first economic measure is ROI, which stands for return on investment. ROI determines the potential profitability of an investment by calculating the benefits received in relation to the cost.
2. The second economic measure is present value. Present value means the value of today of future cash flows and its calculated using a formula. 
3. The third economic measure is net present value which is the present value of total benefits(income or revenue) minus the costs over many time periods.
4. The fourth economic measure is IRR which stands for internal rate of return. This one was difficult for me to grasp, as the organization I was a part of starting my career rarely used this measure for project selection. By definition its defined as the rate at which the project inflows revenues and project outflows(cash) are equal. When I was studying for CAPM I come to understand why it was not really a consideration it's very complex to calculate, either way too good to know.
5. The fifth economic measure is payback period. It is defined as the length of time it takes for the organization to recover its investment in a projects before it starts accumulating profit.  Bulk of my experience in analyzing projects came via payback period where I was aiming for a payback of two years or less. When payback was not favorable the next step of evaluation of 
6. Sixth economic measure cost benefit analysis comparing the expected costs of a project to the potential benefits it could bring to the organization or stakeholders.

There was one time I was assigned a project that utilized no type of criteria or measures prior to it be handed off to me. . It was a passion project of our VP of engineering. My boss called me into this office and I said I want you to develop a process that inspects a wire harness utilizing a camera. The idea didn’t seem to farfetched as I had done research for a food manufacturer performing studies on their production of investigating how vision systems can successfully inspect spaghetti sauce jars. 

As they say the devil is in the details. As I worked to define the steps to execute establishing the business case. Business case was not favorable based upon the criteria. As well as there were really no benefits. Wire harnesses were already being built and inspected by low cost labor in our manufacturing facilities. As a team we had the overall goal of looking at our existing wire harnessing production facilities and finding ways to automate the process to get product out the door faster. This project was not a good candidate for automation. This was not a point to point wire harness. Depending on its location in vehicle the wire harness has to get routed in positioned to a certain location.  The wire harness has certain components that was a bit complex to have a camera inspect due to geometric dimensioning and tolerancing. 

I laid out the business case taking into consideration a couple of these economic measures as justification in addition to the risks. My people leader could not muster up the courage to tell our VP of engineering No.  What I learned is that you can have a standard process for project selection and evaluating, but there will be cases projects are not worked on based on logic, facts, or numbers but politics. It can be frustrating to work on a project that just does not make sense. Despite six months of effort I learned a lot how to develop a business case, create a statement of work, research and talk to vendors. I dotted all my I's and crossed all my T's. Just when I thought we were going to pull the trigger when it came time to invest the money, I was informed it was a NO-GO and let's pivot in a different direction. Myself and other engineers who supported me had been saying we should pivot in  a different direction for six months. Thinking back on it today, all I can do is laugh. 

Wrapping up today's show, although there are industry guidelines, best practices, economic measures for project selection it varies by the nature of business how projects are selected. Nevertheless, a project manager must know always know the "why" projects are selected. 

Thanks for listening and don't forget to share your biggest project management challenges with us.

Exciting news! Our Project Management Masterclass course is launching soon. If you're ready to elevate your project management skills and boost your Project EQ, join our waitlist today to be the first to know when our course goes live. Don't miss out!

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