Introduction
This section will describe how an engineering design team evaluates a project to determine if it is a proper fit for their organization and should be pursued.
Objective
Prepare the student to evaluate how to select a project which is appropriate to be pursued and proceed with project development.
Study Time: 4.0 hours
Overview
This section discusses how to assess whether a project is a good strategic fit for your organization and for your stakeholders. It outlines considerations that should be taken into account when you decide to submit a bid to perform a project for an external funding agency or an industry customer. Various project selection models will also be examined, which can be used as aids in determining whether to pursue a possible project.
Problem/Opportunity Statement
Most new projects occur because a problem has been observed that requires a solution, or an opportunity has been perceived which your organization would like to take advantage of. It is important to generate a clear statement of the problem that needs solved, or the opportunity that is available to exploit. Without the ability to clearly state the situation and the rationale for attacking it, then there is no basis for moving forward.
Begin by identifying and specifying the aspects of the problem or opportunity which is to be addressed. This statement of purpose is the foundation for the project that will be developed as you progress. This statement should be clear, concise and direct. Properly done, it is capable of giving management a clear reason for supporting the project and giving the project team members a common purpose to strive towards. In simplest terms, this statement provides an explanation of why you have chosen to pursue this mission.
Opportunities and problems are similar yet different. Problems tend to be viewed as negative because something has gone wrong and needs fixed or solved. Opportunities tend to be viewed as positive and focus on trying to make changes to some future condition. But they are really two sides of the same coin. Finding the right solution to an existing problem is also an opportunity. Seeing an opening for which there is an opportunity to produce a new product is the same as seeing an impending problem for which there is currently no solution.
A Request for Proposal (RFP) and Bid Proposal
Many projects come to the design team because a potential customer has recognized an opportunity in the marketplace, and is looking for someone to design a product to take advantage of that opportunity. This potential customer is likely to issue a Request for Proposal (RFP) to a number of potential vendors, telling them what is needed and asking them to submit a bid proposal of how they would design and produce the product needed to meet the opportunity. This RFP may simply specify the overall goals and objectives of the project, leaving the design team open to choose from a wide variety of possible solutions. Or, the RFP may be quite specific, detailing the specific requirements and specifications for the final project, leaving the design team a much more constrained design space to work within.
Suppose that an engineering organization has received an RFP from a potential customer. It is not necessarily always a good idea to submit a bid to perform the project. What sorts of things need to be evaluated in order to determine whether to submit a bid? First, it makes the most sense to bid on projects for which you have a known expertise. If your organization has a recognized expertise in a particular area, based on experience performing similar tasks in the past, then the odds are greatly enhanced that you will be the winning bidder because the customer trusts your abilities. It also increases the likelihood that, having won the right to perform the contract, that you will be able to produce a successful product at a viable cost, and on time. If you choose to bid on something that is outside your area of expertise, the likelihood of success (both in winning the contract and in performing it successfully) is diminished. That does not necessarily mean that you should not bid. Perhaps your organization is looking to expand into a new area, and this contract would afford you the opportunity to do that. Perhaps you believe that the product to be produced will mesh nicely with other products that you have successfully produced. These are examples of times when it might be strategically advisable to bid on a project outside your normal realm of activity. Be forewarned, however, that if you are to win a bid to produce something outside of your known expertise, it may be necessary to enhance your proposal in some other fashion, such as perhaps a very low cost bid relative to the other bidders. This is part of the bidding strategy which will be discussed in more detail in a later topic.
Another consideration is, do you have the capability to successfully complete the task? For example, do you have all of the machinery and resources that would be required? If not, then is your organization prepared to make the necessary investment to expand your capability as required, or to hire an outside source to perform the work that is beyond your capability? Both the capability and expertise issues address whether it is realistic for your organization to win the contract to perform this project task. Bidding on an unrealistic project is quite possibly a waste of your own resources.
If your organization is currently busy with a number of projects, is it flexible enough to add another project should you win the bid to execute this new RFP? Winning, and then failing to impress the customer with your ability to produce the desired product on time and budget will not enhance the image of your organization. This is another point where being realistic about your ability to do the task is important.
Do not overlook the fact that there is a cost involved with creating your proposal to bid on the RFP. Some of your staff will have to be dedicated to the task of evaluating the RFP, capturing the project requirements, and determining an approach for your solution, adequate to write your proposal. This may even require performing tests or demonstrations so as to prove to the potential customer that you have the skills and abilities to execute the concept stated in your proposal. The use of the manpower and other resources that must go into the creation of the proposal represent a cost to your organization. So before deciding to pursue bidding on a project, make sure you have the available resources, and that you are willing to consider the amount invested in creating the proposal as a loss if you are not the winner of the contract.
This also leads to another strategic consideration. How much should be spent trying to make the proposal the best that if can be? Obviously, the more effort put into the proposal, the better it will look, and logic says that the possibility of winning is enhanced by a better looking proposal. However, the more effort that is put into the proposal, the more money is invested in what may be a losing proposition. So the determination of how much should be committed to the proposal is a trade-off that requires your organization to balance potential success against potential loss.
Similarly, there is a consideration of exactly how to staff the team that will prepare the proposal. Pulling your best people off of other projects to have them dedicate themselves to preparing the proposal increases the investment that you are making, which may be potentially wasted if you lose in your bid to secure the contract. On the other hand, utilizing lesser experienced staff, or putting together people who are without an assignment at present is not likely to produce as impressive a document, thus diminishing your likelihood of coming out the winner. You are faced with another trade-off.
Some organizations have a team of individuals who only work on preparing proposals. They can become very good at the mechanics of proposal writing. However, the technical expertise that would be necessary for any particular challenge will not be available on such a team, and can only be utilized by picking the preferred experts on a particular subject. So again, how you staff your proposal team is a trade-off.
The cost at which you propose to perform the project is another major consideration. Should you set your bid price high, so as to make an immediate profit on the project? A high bid price could hurt your organization in the competition for the contract, if other bidders offer lower costs. You could offer your bid at a low price, achieving very little profit, but hoping that you may be able to parlay victory on this bid into new sales in other related areas. You might even rely on the fact that you can make your profit on spare parts sales and service in the future, accepting little or no profit on the initial sale. Earlier, it was even suggested that your organization might be looking to expand into a new market in which you have no proven expertise, in which case, it could be a strategic benefit to price your efforts at a loss to your own organization, in the hopes that a really low cost bid might overcome your organization’s lack of experience and make you the winning bidder on the contract.
Stakeholders
One approach to determining the applicability of a project is to identify your organization’s stakeholders and evaluate the impact on them. Stakeholders (not to be confused with stockholders) include anyone who has a stake (interest or concern) in the success versus failure of your organization or your project. Stockholders is a term generally referring to those people or organizations who have invested in your organization financially, by purchasing shares in the company as sold on the investment stock market.
They clearly have an interest in the success of your organization, because their ability to collect investment dividends or sell their shares at a higher value than they purchased them, is tied to the success of your organization and its projects. Thus stockholders are stakeholders. However, there are many other stakeholders, as well. They include the employees of the company, who clearly have a vested interest in whether or not the company succeeds and continues to offer viable employment, as opposed to failing and going out of business, leaving the workforce without a job.
Customers are stakeholders, because their business success is dependent upon your organization producing the items that they buy from you.
Vendors are stakeholders because their business is contingent on your organization’s continued success and need to purchase products or services from the vendors.
So a stakeholder is literally anyone whose situation is effected or impacted by the continued success of your organization. All of the considerations discussed in Topic 1 could be considered from the perspective of how each decision will impact all the potential stakeholders of your organization.
Reasons for Project Selection
There are a number of reasons that projects are selected. On the logical side, there are a number of models which businesses have developed to help them analyse and determine whether or not a project is worth pursuing. It is important to recognize, however, that models do not make decisions - people do - and we need to recognize that there are some reasons for project selection that simply over-ride logic. Some examples are:
- The Sacred Cow - In this case, the manager in charge of an organization simply believes that a project is a good idea and has the power to set it in motion. Often, on that basis alone the project is pursued, regardless of any logic. It is entirely likely that such a project will be maintained until it is either concluded, or the manager decides that it will not succeed and terminates it.
- The Operating Necessity – In this case, it is determined by management that the project is needed in order to keep things running. It is imminently necessary and it needs to be done quickly so that everyone can get back to work. Little logic is applied, and the quickest path to completion is often selected without consideration for much else.
- The Competitive Necessity – In this case it is perceived by management as a necessity to pursue such a project in order to keep up with the competition (or, if your organization is pro-active, to stay ahead of the competition). This does not take precedence over an Operating Necessity, but it is seen as needing done quickly and it tends to take precedence any other selection logic.
Comparative Benefit models for Project Selection
Suppose that a number of possible projects have been suggested. They are all different types and are not comparable. Some are new products, some are changes to existing product lines, some may be process modernization, etc. The organization must decide which projects to pursue. Here are some project selection models which compare the relative benefits of the various projects.
- Q-Sort Method – This is a non-numeric method in which the team creates a deck of possible projects (think of this as being like a deck of cards, with each project on a card). The team initially sorts the deck into two groups, one which the team sees as having as a high probability of success and one which has a perceived low level of success. The high deck is sorted again, this time again sorting it into higher versus lower probability projects. The same is done with the original low deck. These decks are each sorted once more, again dividing them into high and low probability groups. As shown in the diagram below, the projects have now been ordered from highest probability of success to lowest probability of success, purely using subjective assessment of the projects relative to each other.
- Net Present Value Model – this is a numerically driven profitability model where the following value is calculated for each project under consideration:
NPV = -A + ∑t Ft / [1+ k + p]
where
A = initial investment
Ft = net cash flow in for period t
k = required rate of return
p = projected inflation rate
Positive NPV projects are considered acceptable, and the highest positives are the best projects. The major shortcoming of this model is that it considers only financial factors
- Un-weighted Factor Scoring Model - this is a numerically driven model in which multiple factors are considered. Management initially selects a set of relevant factors for the selection process (cost is usually one of them, but not the only one this time). Raters are chosen from the organization’s experienced individuals who have the big-picture in mind. Performance levels are established. Each rater scores each factor and the following summing calculation is made over all the factors:
Si = ∑ Sij
where:
Si = Rating score for project i
Sij = Rating for project i on factor j
- Weighted Factor Scoring Model – This is a modification of the un-weighted factor scoring method in which not all factors carry the same importance, and therefore can be assigned weighting factors.
Si = ∑n SijWj
Where:
Wj = weighting established for each factor
Market Analysis
An engineering design team is usually tasked with designing a new product to take advantage of a perceived opportunity by developing a solution that is both feasible and cost effective and determining a way to produce that solution. One of the design team’s roles is to assess the opportunity and develop the requirements and constraints that represent the design space of solutions to the problem, and then to produce the best design that will exploit the opportunity. There are a number of tools which may aid the team in performing market analysis.
SCOTSMAN is a tool which can aid you in determining whether there is a potential market for a particular new product. It is important to understand the viability of a new product before investing the time and resources necessary to design and develop that product. You can save a lot of wasted effort by assessing the viability of the new product before you create it. SCOTSMAN is an acronym for the eight steps of a process which qualifies a new product, that is, assesses the need for it and therefore whether it is likely to sell once introduced. The eight stages of questions which need to be addressed are given below. If you have solid answers to each of them, then your likelihood of success is greatly improved over the prospect of moving forward without such an assessment.
- (S) Solution — Do you have a solution that will address the need or opportunity which has been determined to exist? Is the solution viable and producible? Is your proposed solution consistent with your organization’s skills, expertise and resources?
- (C) Competition — Is there anyone else producing, or intending to produce, a similar product which would compete against yours in the marketplace? How does it fit relative to yours in its ability to solve the need or opportunity that you are endeavouring to exploit?
- (O) Originality — Is your solution unique? Are you offering something original and therefore likely to catch the attention of the marketplace?
- (T) Timescales — Do you understand the timeline that it would take to get your solution into production competitively? Can you deliver your design so as to meet that timeline?
- (S) Size — Do you have a clear understanding of the size of the potential market? Is the potential size of the market, in terms of number of potential sales, large enough to make it worth the effort that will have to be expended? If this is a small initial market, could it open potential doors to other sales or other market? Is the project too big for your organization to the extent that it could have a detrimental impact on your existing products?
- (M) Money — Is there a budget available to launch this new project? Is it adequate to cover all possible contingencies?
- (A) Authority — Are you dealing with the correct people who have the authority to approve the project and support it to completion?
- (N) Need — Is there truly a need for your solution in the marketplace? Is it so compelling that the availability of your product in the marketplace would virtually guarantee its sale?
SWOT
Another business analysis model that may be helpful in determining the potential for success with a new product, is the SWOT analysis. SWOT is an acronym which stands for Strengths, Weaknesses, Opportunities and Threats. It provides a framework for considering the aspects that affect your new product’s success in a new market. It can help with the development of an action plan which can take advantage of your organization’s strengths, overcome its weaknesses and attack opportunities in the marketplace by making sure that you are fully aware of all aspects affecting your success. SWOT is meant to be applied at the proposal stage of a project. It acts as a precursor to taking any substantial action, helping you organize information, identify solutions, circumvent roadblocks and maximize opportunities.
SWOT analyses focus on the four elements represented by the acronym and typically involves creation of a table which is divided into four columns, each listing impacting elements for easy visual comparison. The first two letters of the acronym, S (Strengths) and W (Weaknesses), are generally factors internal to your organization. These can include
- Financial - does your organization have the money available to pursue a new opportunity? Are there new investment opportunities you can take advantage of?
- Physical – Does your organization have the equipment necessary to produce the new product? Is there space in your facility to accommodate a new product line?
- Human – Do you have the manpower resources to pursue such a project to completion? Is the management structure in place to support the project?
- Access – Do you have to access to such things as patents, copyrights, etc, that are pertinent to the project’s success?
- Vendors – Do you have relationships with the appropriate vendors and suppliers necessary to bring the project to completion?
- Processes – Will your organization’s internal processes support such a project?
- Culture – Is the project consistent with the internal culture of your organization and will it align with the image that your organization has?
The remaining two letters of the acronym, O (Opportunities) and T (Threats) are generally external influences. These can include:
- Product – Is there an opportunity to enter the market with a new product that your organization has conceived?
- Improvement - Is there an opportunity to enter the market with an improved version of an existing product?
- Void – Is there currently a void in the marketplace that presents an opportunity which your organization can exploit?
- Market Trends – Are customers becoming interested in a new direction, opening the door to new products?
- Competition – Is one of your competitors threatening your position in the market place due to their trying to exploit an opportunity against you? How damaging can it be?
- Economics – Is there a threat due to uncertain economic times that mean your organization should be changing its tactic to shore up its own business?
- Timing – Is your organization about to lose patent protection on a reliable product and therefore risks losing business to a competitor who will soon be able to duplicate your product?
- Age – Are your products or your processes out of date and putting your organization at risk of losing market share?
When listing items in these four categories, it is useful to utilize a Brainstorming session as discussed previously. Try to anticipate every possible weakness, strength, threat and opportunity. This analysis prompts you to examine your situation and develop strategies to address the environment in which you operate.
PEST
In addition to the internal and industry factors discussed with the SWOT analysis, there are several other macro-economic external factors that can impact your organization, particularly when considering new products. Another tool which can be used to analyze your situation is PEST, which is an acronym for Political, Economic, Social and Technological. These are four more external factors which can impact your business planning in the long term. PEST may well be used in conjunction with a SWOT analysis. The PEST factors are as follows:
- Political – Government regulations and other legal factors can affect the business environment and the behavior of the marketplace. Therefore it is appropriate, as part of your business analysis, to examine the current political stability, tax laws, trade restrictions, safety regulations, employment laws, etc. and consider how they will affect your organization if you move forward with the product.
- Economic – Businesses should continually examine the economic issues that have the potential to impact the company. This would include factors like inflation, interest rates, availability of credit, economic growth, the unemployment rate, etc. This includes being aware of world markets as they provide potential customers and in today’s global economy they can have a significant impact on your country’s economy.
- Social – The socio-economic environment of the market for your new project can be impacted by customer demographics, cultural limitations, lifestyle attitude, and education of the consumer. You need to examine how consumer needs are driven and what brings potential customers to your product with an interest to purchase.
- Technological – Technology can positively or negatively impact the introduction of a new product into the marketplace. These factors include consideration of new technology which may drive a totally new product, technology which may modernize the way an existing product is made, changes in market demand due to new consumer technologies, purchasing trends such as the shift to internet buying, etc.
PESTEL is an extension of PEST that is used to assess two additional macroeconomic factors, the Legal and Environment conditions that can have an impact on the organization and its business. The new portions of the acronym are as follows:
- Legal – Laws and government regulations can affect the business environment and how the marketplace behaves. Therefore as part of your business analysis, you should consider the current political stability (election years can be volatile years in the market), tax laws (and what politicians are discussing they will do to affect the future), trade restrictions, safety regulations, and any other legal issues on the horizon. You need to consider how these issues might affect your organization and its new product launch.
- Environmental – Changes in weather and climate patterns and regulations involving pollution, recycling, waste management, etc. can impact the way you operate and also the interest of the consumer in a new product, and thus should be considered in a business analysis. Also, the demand for green, eco-friendly, and sustainable products is on the increase, and these market desires should be factored into your business analysis.
As with the previous analyses, brainstorming all the possible issues is a good place to start. Include anything that might give you early warning of a significant opportunity or a significant risk. Having these items in mind helps you plan and reduces the potential for a negative impact. If it helps you avoid starting a project that could be high risk, or gives you confidence to start a successful new venture, then it is well worth the time invested.
STEEP
STEEP analysis is another strategic planning tool, considered by some to be more advanced that SWOT. It guides you to consider more external parameters. It is an acronym for Social, Technological, Economic, Environmental and Political. The following discusses considerations for each of these:
- Social – In the social step of the analysis you should evaluate the cultural changes which take place in the business environment, including market research, population growth, changing consumer tastes and attitudes, consumer age and demographics, changing interests of the population, how lifestyle is altering consumer buying strategies, etc.
- Technological – Advancing technology produces opportunities to design new products using technologies that did not exist when existing products were conceived. It also can lead to advances in machinery or industry processes which can make production of a given product more efficient. Technology can also change the buying habits of consumers as seen recently in the surge toward on-line purchasing.
- Economic – Your ability to take advantage of opportunities in the marketplace may be impacted by unemployment levels, economic inflation, international trade balance and the access to foreign markets, availability of credit and the rates at which it can be borrowed and other economic factors which you should be aware of before starting out on a new venture
- Environmental – Every business and every project has some impact on the environment. This impact can be positive or negative, and the impact has to be considered in light of environmental regulations and restrictions as well as how the environmental concerns of society are influencing the move to sustainable, or green, products and processes.
- Political – Laws, taxes and tariffs set by your country’s government or the governments of potential foreign markets need to be evaluated when considering a new product.
The STEEP model can be expanded to STEEPLE with the addition of two more parameters.
- Legal – Make sure that your product and your business conduct remain strictly within the bounds of legality. A company’s reputation can be drastically damaged if violations are detected, and huge financial penalties can result if your violations cause harm to others.
- Ethical – In the Materials & Design 1 module, ethics was discussed in some detail. Breaches in ethical behavior can ruin a company’s reputation and can lead to lawsuits that quickly turn a profit into a loss. Make sure that the business you are about to conduct is within all ethical boundaries.
A further expansion by one additional parameter creates the STEEPLED analysis.
- Demographics – Demographics is the study of the population characteristics of a group of people. In a business case analysis, it can help your decision making process if you analyze the demographics of your potential consumer. What is the age, gender, income base, geographic location, etc. of your potential buyer going to be? Does that demographic represent a large or small percentage of the population? If your product is applicable to a broad demographic, it has a better chance of sales than one with a small demographic.
STEER
STEER analysis looks at Socio-cultural, Technological, Economical, Ecological and Regulatory factors when assessing a business strategy. It helps you to understand the impact that your organization has on the community and the environment, both locally and globally. It can also help you assess the operational efficiency of your organization. The parameters of this analysis are as follows:
- Socio-cultural – How will your product align with the changing attitudes of today’s consumer? Will your product fulfil a need that today’s consumer has? Will it generate that need by its presence in the marketplace? Are you in a position to drive the next big change in the market?
- Technological – Advances in technology often generate new products or solutions to needs that have long been unfulfilled. But just because technology can create a new product, should it? Is society and the quality of life of the consumer going to be advanced by the availability of the new product?
- Economical – Is your proposed product going to be affordable by the masses? Is it going to aid in the narrowing of the gap between those with wealth and those without? Is it going to assist the low income buyer in elevating his or her lifestyle?
- Ecological – Every product uses resources. The availability of dwindling resources is becoming a constraining factor in the development of new products. Does your proposed product use sustainable resources? Does it appeal to the growing green philosophy in consumer purchasing? Does it have a positive or negative impact on the environment, both in your country and in third world countries?
- Regulatory – Does your product safely fit within the regulatory constraints of the governments of all regions where you hope to market the product?
Summary
The success of an organization may hinge on its ability to choose the correct project to pursue and which ones to bypass. It is important, therefore, that members of the organization establish a means of evaluating perceived problems and opportunities, assess them against the organization’s expertise and capabilities, and perform analyses which aid in selecting the projects which are most likely to succeed. This section has presented things to consider and analysis tools to use in making these selections.
References & Bibliography
Dym, C. & Little, P. (2009). Engineering Design, 3rd edition. Hoboken, NJ, USA: Wiley.
Heizer, J., Munson, C. & Render, B. (2017). Operations Management. New York: Pearson.
Horenstein, M. (2002). Design Concepts for Engineers, 4th Edition. Upper Saddle River, NJ, USA: Prentice.
Meredith, J. & Mantel, S. (2012). Project Management, 8th edition. Hoboken, NJ, USA: Wiley.