how to choose the right projects to meet your objectives and resources?
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http://makeitrational.com
How to Choose the Right Projects to Meet Your Objectives and Resources?
(Simplified approach to project selection)
Project Cost
Project 1 1 700 000
Project 2 2 000 000
Project 3 1 500 000
Project 4 600 000
Project 5 2 500 000
Project 6 3 500 000
Total 11 800 000
Over budget
Project Cost
Project 1 1 700 000
Project 2 2 000 000
Project 3 1 500 000
Project 4 600 000
Project 5 2 500 000
Project 6 3 500 000
Total 6 300 000
In budget
How to choose between projects?
How to choose between projects?
1. Prioritize projects against your objectives.
2. Calculate priority/cost ratios.
3. Order projects by benefit/cost ratio.
4. Cut projects from the bottom until you meet the budget.
Prioritize projects (1/2)
• The better project meets your objectives the higher priority it has.
• You can learn how to prioritize projects here: http://makeitrational.com/prioritization
• Projects with higher priority have priority access to portfolio.
• The goal is to find portfolio that meets your budget with the highest total priority of included projects.
Prioritize projects (2/2)
Project Cost Priority
Project 1 1 700 000 20
Project 2 2 000 000 10
Project 3 1 500 000 25
Project 4 600 000 5
Project 5 2 500 000 30
Project 6 3 500 000 10
Total 11 800 000 100
How to choose between projects?
1. Prioritize projects against your objectives.
2. Calculate priority/cost ratios.
3. Order projects by benefit/cost ratio.
4. Cut projects from the bottom until you meet the budget.
Priority/cost ratios
Project Cost Priority Priority / Cost
Project 1 1 700 000 20 0.0000118
Project 2 2 000 000 10 0.0000050
Project 3 1 500 000 25 0.0000167
Project 4 600 000 5 0.0000083
Project 5 2 500 000 30 0.0000120
Project 6 3 500 000 10 0.0000029
Total 11 800 000 100 -
How to choose between projects?
1. Prioritize projects against your objectives.
2. Calculate priority/cost ratios.
3. Order projects by benefit/cost ratio.
4. Cut projects from the bottom until you meet the budget.
Projects ordered by priority/cost ratio
Project Cost Priority Priority / Cost
Project 3 1 500 000 25 0.0000167
Project 5 2 500 000 30 0.0000120
Project 1 1 700 000 20 0.0000118
Project 4 600 000 5 0.0000083
Project 2 2 000 000 10 0.0000050
Project 6 3 500 000 10 0.0000029
Total 11 800 000 100 -
How to choose between projects?
1. Prioritize projects against your objectives.
2. Calculate priority/cost ratios.
3. Order projects by benefit/cost ratio.
4. Cut projects from the bottom until you meet the budget.
Cut until you meet the budget (8 000 000)
Project Cost Priority Priority / Cost
Project 3 1 500 000 25 0.0000167
Project 5 2 500 000 30 0.0000120
Project 1 1 700 000 20 0.0000118
Project 4 600 000 5 0.0000083
Project 2 2 000 000 10 0.0000050
Project 6 3 500 000 10 0.0000029
Total 8 300 000 90 -
Cut until you meet the budget (8 000 000)
Project Cost Priority Priority / Cost
Project 3 1 500 000 25 0.0000167
Project 5 2 500 000 30 0.0000120
Project 1 1 700 000 20 0.0000118
Project 4 600 000 5 0.0000083
Project 2 2 000 000 10 0.0000050
Project 6 3 500 000 10 0.0000029
Total 6 300 000 80 -
Pros of simplified approach to project selection
• Fast
• Easy to use
• No advanced math
• Well optimized portfolio
Cons of simplified approach to project selection
• Only 1 type of resources What if limited is not only budget but also number of consultants?
• No dependencies between projects What if “Project 3” can be chosen only if “Project 6” is chosen? E.g. you won’t renovate building if you don’t buy it.
• Sometimes portfolio isn’t as effective as it could be… (see on the next slide)
Total priority could be 85 instead of 80 (still in budget – 8 000 000)
Project Cost Priority Benefit / Cost
Project 3 1 500 000 25 0.0000167
Project 5 2 500 000 30 0.0000120
Project 1 1 700 000 20 0.0000118
Project 4 600 000 5 0.0000083
Project 2 2 000 000 10 0.0000050
Project 6 3 500 000 10 0.0000029
Total 7 700 000 85 -
How to choose between projects in a more effective way?
Take into account multiple types of resources.
Define dependencies between projects.
Find better optimized portfolios.
Find out more: http://makeitrational.com/resource-allocation