Six methods for prioritising projects

There is no shortage of quantitative and qualitative techniques for selecting and prioritising projects. Here we will run through six methods that provide a flavour of both.

What is project prioritisation?

Project prioritisation is the process of determining which projects are of highest important and will bring the most value to your organisation. This allows your project teams to focus their efforts on the one selected to ensure its success.

Why is project prioritisation important to business?

Project prioritisation is crucial for organisations as it helps:

• Allocate resources efficiently
• Enhance overall performance
• Ensure that efforts align with strategic goals
• Focus on key objectives
• Make more informed decisions
• Manage risks effectively
• Maximise productivity
• And more!

Prioritisation is a useful skill to have as a project manager. It’s important to be able to prioritise your projects effectively, so you can figure out where to best place yours and your teams energy for the highest returns.

Project prioritisation methods

Net Present Value (NPV)

Favoured by the public sector to compare the discounted value of a stream of future costs or benefits, this defines the difference between the present value of a stream of costs (NPC) and a stream of benefits. A positive NPV would indicate that a project should be profitable and pursued whilst a negative value would indicate that the project should be abandoned.

To calculate NPV, you need to estimate the timings and amount of your future cash flow, and estimate a discount rate that’s the equivalent to the minimum rate of return for your business. This discount rate could be your cost of capital or the returns available on alternative investments of comparable risk.

If the NPV of your specific project is positive, then the rate of return will be above the discount rate. However, if the NPV is negative, the project is unlikely to create any value for your business.

Payback period

By using the fairly straightforward method, managers can calculate how long it will take for project benefits to match or recoup the initial cost. Projects with a quick payback period are naturally more appealing than those with a longer payback period during which more can go wrong. However, you should always bear in mind that a fast payback period does not guarantee a higher rate of return.

It is also worth noting that, whilst payback’s simplicity is its strength, some might consider it over-simplistic to be used alone.

Internal Rate of Return (IRR)

The internal rate of return is the rate of growth that your project is expected to generate annually. This is calculated in a similar way to NPV, with a higher rate of return making investment more probable. Organisations will generally set a minimum rate of return below which they will not normally consider a project.

The main goal of IRR is to highlight the rate of discount, and it is ideal for analysing capital budgeting projects to compare the potential rates of return over time.

Earned Value Analysis (EVA)

This is a method that allows project managers to measure out the amount of work that’s gone into a project, to track the costs, spend and progress. This is then used to estimate the number of resources used by the project completion.

This is viewed with caution by some project managers and businesses, and it’s largely associated with bigger projects, and requires a culture of reporting within the company. However, this is a helpful technique to keep an eye on project performance and correct variances. It can also be used to put a project on ice, or even ditch it entirely, if necessary.

Balanced Scorecard (BSC)

Organisations employ this to align vision with business activities by viewing the company from four perspectives:

• From a financial perspective, companies might look at everything from return on investment to cash flow.
• From an internal perspective, managers might assess factors such as process automation or alignment.
• From a customer perspective, factors like customer retention rate might be examined.
• From an innovation and learning perspective, firms can focus on areas such as employee expertise and job satisfaction.

Senior management can look at all the perspectives, and avoid information overload as the number of measures used is limited. The balanced scorecard method encourages managers to focus on the most critical measures.

Business case

The business case provides a programme or project with its raison d’être, or ‘reason for being’, and is an important component of both PRINCE2® and MSP®. It outlines reasons for investing in a project, furnishes a framework for bringing about business change, and runs for the life of the project to ensure that it stays on track.

This prioritisation method evaluates the benefits, costs, and risks associated with the project, allowing managers to choose a preferred solution for the business, with the highest return.

Project prioritisation matrix

A project prioritisation matrix is a tool that allows project teams to determine which projects are most urgent, which will bring most value to the organisation and which have the best chance of success. There are several types of project prioritisation matrices which allow you to compare various criteria that may impact the success of your project.

Made use of this matrix and decided on your selected project? Next you need to learn how to prioritise project work.

How can PRINCE2® training help me?

The PRINCE2® methodology teaches skills that will increase your project success rates. Discover what PRINCE2 is, and why you should study it before checking out our training courses.