How to select a project?

Projects are undertaken to produce a product or a service for various reasons. This includes factors like market share, financial benefits, return on investment, customer retention and loyalty, and public perceptions. Organizations might receive several projects at a time. They have to select the best among the received projects request. They make decisions based on the best information they have about a particular project at a given point of time when selecting the project. Performing cost-benefit analysis while selecting a project would help them. Why? Let us discuss now.

In simple terms, in cost benefit analysis, organizations compare the financial benefits to the company of performing the project to the cost of implementing the project. In other words, organizations compare the cost of implementing projects including the cost to produce the product or service, marketing cost and ongoing operational costs etc to the financial benefits to the company when making a decision. For example, let’s say a company is considering developing a business intelligence software product that will allow companies to predict customer buying pattern. Some of the costs they will take into account are: (a) The costs to develop the software such as programmer costs, hardware costs, testing costs, etc, (b) Marketing costs such as advertising, traveling costs to perform demos at potential customer sites, etc and (c) Ongoing costs such as having a customer support staff available during business hours to assist customers with product questions and problems.

Let’s say the cost to produce this software, marketing cost plus the ongoing support costs is $10 million. Initial projections look like the demand for this product is high. Over a two-year period, projected revenue is $20 million. Taking only the financial information into account, the benefits outweigh the costs of this project. This project should receive a go recommendation. If a company receives more projects similar to the one we described, they can prioritize the projects based on the benefits.

I would like to highlight three major benefits of using this approach while selecting a project.  The first and most important benefit is that the project will be approved and funded easily as the stakeholders can see the projected financial benefits of the project.  The second is that since the projected cost of the project in hand, organizations can frequently measure the actual cost and compare it with the projected cost to see the real picture of expenses at any given point of time. This is kind of reality check organizations can perform to see the progress of the project. Third is that since the projected benefits of the project in hand, sharing the information to all stakeholders involved in the project and with the teams who will be doing the project would create some sort of empowerment which is really good for the organization from an alignment perspective. Few may wonder how this could be applicable for the projects which organizations perform to meet the legal guidelines & improvement projects. In both cases lose of not doing a project can be the considered as the benefits of doing the project. In summary selecting projects based on cost benefits would help organizations in several ways.