Project Evaluation and Selection Process, Essay Example

Introduction

For the purposes of this paper, I am choosing to analyze the decision making process behind deciding on a potential project for a firm in the construction management industry. The hypothetical firm, roughly medium in size compared to its competitive peers, has a number of important characteristics that distinguish it from its peers.  In particular, the firm has three main attributes that compose its competitive advantage: 1) Implements the latest technology in its service offerings, not only into project deliverables, but also in all aspects of project management; 2) The firm not only engages in and manages construction (primarily of commercial office space) but is also an innovative and reputable designer; one of the few firms that is able to successfully integrate both upstream and downstream offerings; 3) The firm currently boasts a robust presence throughout North America and, with the commensurate downturn in recent construction work due to economic sluggishness, is looking to expand abroad in order to maintain revenue and increase the operability of upstream and downstream service offerings on a global basis.

With this introduction in mind, the firm decides to look at a new opportunity that usually would be outside of its operational purview; however, due to the economic downturn and the increasingly global nature of the construction industry, the firm examines the project in greater detail.  The proposed project is in the firm’s basic competitive niche; that is, the project deals with the design and construction of upscale office space.  However, there are three critical differences that distinguish this project from its previous projects: 1) The project is located in the United Arab Emirates (Qatar) which is a notable distance from any of the firm’s main offices in North America and outside of its usual cultural service space; 2) The scale of the project is roughly 4 times bigger than any other project the firm has ever engaged; 3) The firm would be the smallest firm in a coalition of construction firms building the site; indeed, while the firm is used to being a mid-sized player in the project, due to the scale and the importance of this particular project, it would be giving support to many of the larger firms that are in charge of the site.

This essay will look at four key metrics in assessing whether the firm will accept this new and  challenging project: 1) Expected Profitability; 2) Technological Opportunity; 3) Development Risk; 4) Approvability.  Although many of the articles in the course do not specifically deal with issues related to the construction industry, there are general guidelines for project management that will examined throughout. Thus, similar to the conclusion of Besner and Hobbs (2008), this paper will analyze the potential project based on the underlying assumption that although there are specific lessons to be learned in different types of project management (e.g., IT, construction), there are also “generic” lessons that can be applied across different disciplines.

Expected Profitability 

Expected profitability is one of the most important metrics in assessing whether a firm will choose to engage in a project or not.  Overall, there are two traditional ways of benchmarking a project: 1) Using quantitative measures to assess a project’s approximate return on capital allocated; 2) Qualitative measures that attempts to balance cost and benefit measures across the life of the project.

Measures of profitability include such commonly used finance measures as the net present value (NPV) or the internal rate of return (IRR) of a project.  While managers usually default to the NPV because of its easier cognitive interface, some have argued that traditional methods of NPV do a poor job of capturing both the multifaceted risks and rewards inherent in a certain project.

As Davis (2002) cogently argues in his article, traditional accounting-based measures of risk often times do not properly separate risk from uncertainty in a manageable way (Davis, 2002).  In order to make decision making more transparent, Davis proposes a new measure of financial decision making net present value, risk adjusted (NVPR) to serve as the main decision making analytic metric (Davis, 2002). NVPR is essentially an aggregate metric embedding three different types of risk: marketing risk, user risk, technical risk. Although Davis’s analytical schema may be typically used for product development (R&D), particularly in industrial or technology products, it also can be used to guide risk and profitability decisions for this particular project.  Regarding market risk, the main categories are value chain assessment and market segment assessment. The project would likely rate “medium” risk for value chain assessment as the firm would have to rely on other (unfamiliar) partners in the work stream to deliver the products.  Regarding value risk, the rating would likely be “high” in that the firm is a market leader in the segments that it is providing for this project- the main problem will be cooperation with other firms to deliver the project.

Second, the technical risks of the project rate fairly high. The project would rate a “medium” risk for innovation assessment in that the firm has used the basic technology for other projects, but some of the shared interfaces will be new and will need to be compatible with systems used by other firms. Likewise, a “medium” risk would be assessed to capabilities development in that although an experienced team exists that has used the technology before, the scope of the project is larger than any one team member’s experience level. Finally, looking at user risk, this analytical schema must somewhat be transformed in order to be suitable for the construction industry. Overall, the risk level would likely be “medium” due to the application of existing technology albeit to a new market segment: the Middle East.  The construction firm has little or no experience in directing projects outside of the country and that must be taken into consideration. While it is not possible to calculate a specific NVPR due to a lack of financial details, this exercise is profitable in that it forces a firm to identify the main risks in the project compared to the potential profits. In this project, the main risks will be applying existing technology to a new market on a much larger scope than previously implemented.  In addition, there may be technology issues due to the working with construction partners that use different technological platforms.  For the firm, however, these risks are necessary in order to grow the business and to take the firm to the next level both operationally and technologically.  That is, the firm sees this project as a key stepping stone in order to increase its brand awareness outside of its core market and participate in more large-scale projects. Thus, the firm is willing to take the risks knowing the long-term payoffs to the bottom line will hopefully pay off.  In assessing how to make sure the budgetary estimates are “correct”, we followed the conclusions of Zwikael,, Globerson & Raz (2000) in adopting the rule that cost derivations will continue at a constant rate.  This will ensure a more accurate budget process.

Technological Opportunity

The role of technology in project management is extremely important; not only in how technology can enable a project to be successful (or fail), but also in its long-term impact to  empower project managers and as a training tool for future managers in the firm.

This project offers a number of opportunities and risks to the firm regarding its technology in managing projects.  Overall, the sheer scope of the project, as well as the level of interoperability with other firms working on the project, will pose a short-term threat to the medium sized firm.  Indeed, the firm will not only have to upgrade its ability to manage projects via a number of different technologies but also have to train and equip the project members to use the technologically efficiently.

However, the importance of technology in project management is likely undervalued in the literature, particularly regarding its connection to ensuring a successful project.  Anantamula (2008) provides evidence that technology can serve as a valuable component, not only to help project managers keep track of progress and communication, but also as a valuable training tool that will help to raise the level of other managers who can learn from the project. Indeed, after presenting a literature review of important predictors of project success, Anatamula (2008) analyzes how those predictors are tied (or enhanced) by technology through using the ISM methodology. Indeed, technology plays such a valuable role in project management because it can serve as a unifying operational thread for many of the project predictors such as a clearly defined project mission, a cohesive project team, organizational support, and clear, efficient communication (Anantamula, 2008).  Thus, this project offers the firm a rare opportunity to upgrade its technological capacity in managing complex, large-scale projects; in addition, the training opportunities for the firm’s project managers will profit the firm in a number of ways throughout the future.  This is not a factor to be discounted in not only predicting the potential success or failure of this project, but also in determining the long-term impact of the project on the organization.

Development Risk

The risk inherent in the development of this project is substantial.  The firm is facing a number of new challenges that will test the existing project management infrastructure. However, in spite of the risk, there are a number of tools that can be used in order to mitigate, although not eliminate, such risk.

First, this will be the firm’s first project that will involve sustained cross-cultural collaboration with contractors and clients from another country.  As Hillebrand (2007) points out, cross-cultural collaboration not only requires a recalibration of expected assumptions regarding work flow and relationships, but also requires a more flexible attitude in order to complete the project successfully.  This will be a critical factor that will need to be overcome over the life cycle of the project.

Second, another key predictor of the project’s performance will be able to sustain project managers and workers buy-in to the transformational nature of the project.  As Christenson and Walker (2004) point out in their article:

“Rigorous applications of project management methodologies are responsible, though only partially, for project success… a significant driver of project management success is effective and intelligent leadership communicated through an inspiring vision of what the project is meant to achieve and how it can make a significant positive impact.(Christenson & Walker, 2004)”

In the context of this project, management’s vision for the project’s role in transforming the company must be clearly articulated and presented to all workers on the project.

Approvability

The approvability of the project, while still presenting difficulties for the firm, will likely be handled by many of the cooperating firms. That is, the firm will be entering the market as a recognized partner of firms that have already passed the stringent process of acquiring all necessary construction permits for the project. This will not obviously recuse the firm from performing all proper due diligence, particularly regarding the other firms working on the project and the necessary information needed to be a construction operator in the Qatar market.

Conclusion

Overall, this project provides substantial opportunity and risks for the firm. In addition to help upgrading the firm’s ability to manage projects and use technology in a project management setting, the firm, if successful, could emerge as a global leader in this space.  In order to , however, the firm will have to deal with traditional issues such as project management, as well as working in a new culture and annunciating a clear vision of how this project will fit into the firm’s long-term development.

References:

Anantatmula, V. S. (2008). The role of technology in the project manager performance model. Project Management Journal,  39  (1),  34-48.

Besner, C., & Hobbs, B. (2008).  Project management practice, generic or contextual: A reality check. Project Management Journal, 39  (1),  16-33.

Christenson, D., & Walker, D. H. T. (2004).  Understanding the role of vision in project success. Project Management Journal,   35  (3),  39-52.

Davis, C. R. (2002). Calculated risk: A framework for evaluating project development. MIT Sloan Management Review,   43  (4),  71-77.

Hildebrand, C. (2007). Cross-cultural collaboration.  PM Network, 21 (3),  51-52.

Zwikael, O., Globerson, S., & Raz, T. (2000). Evaluation of models for forecasting the final cost of a project. Project Management Journal,  31  (1),  53-57.