3.2
A Prequalification Process
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Prequalification
An effective way to accomplish these goals is using a prequalifica- tion process. The idea is to follow a structured routine that guides the sponsor through the preparation of the ranking material. Once this is done, the proposal or business case must pass certain tests be- fore the project can get on the candidate list.
As part of the development of the PPM process, the PMO cre- ates a prequalification template. This template has a section for each subject area of the proposal to be considered with questions to guide the sponsor’s responses. Periodically (in conjunction with the strategic planning cycle) the prequalification template is updated with the current ranking and selection criteria to reflect the latest thinking relative to strategic buckets, risk philosophy, and financial and resource constraints.
As each project is conceived, a proposal (or business case) is pre- pared that will include the response to the current prequalification questionnaire. The first objective is one of self-regulation. It is ex- pected that many inappropriate proposals will be withdrawn before being issued because the sponsor will recognize that it doesn’t meet the acceptance criteria, or it will be ranked so low as not to make the cut.
At this juncture, projects should be withdrawn for these reasons:
• Not in line with available resources, mission, or other criteria
• Not sound politically, socially, or for business relationships
• Feasible technologically but not economically
• Feasible economically but not technologically
• Involve excessive risk or are not within the risk culture
The prequalification criteria should not be rigid. However, if there are exceptions, the business case must present arguments to pass the prequalification criteria.
Because the prequalification criteria have been published and distributed, sponsors are obligated to address potential issues early.
The result is a reduction in the number of bad proposals.
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Proposals that are not withdrawn are now reviewed within the PMO for pass-fail against prequalification criteria. The PMO may re- ject proposals that do not meet the criteria or may pass on recom- mendations to the GC. The project sponsor may appeal the PMO decision to the GC. A review team will judge whether anyone has a reason to override the prequalification criteria for a particular pro- posal. They will have to convince others on the committee. The committee may recommend modifications to the proposed project to allow it to pass the prequalification test.
Once the proposed project passes the prequalification test, it is placed in the hopper for the ranking review, the next step. Failed proposals may be fully withdrawn or placed in a second-tier group as backups.
This prequalification routine will save the time and effort to rank proposed projects that don’t really have a chance. It will also help to make the number of proposed projects more manageable.
Figure 3.2-1 is a flow diagram of the prequalification process within a PPM system.
The Prequalification Criteria
I suggest that a prequalification template be designed that can be updated with specific values and conditions in accordance with the latest strategies, tactical plans, and corporate culture.
Actually, most operations will have multiple prequalification models. As an example, let’s consider an organization that manages three types of projects: maintenance and utility projects, growth or enhancement projects, and transformation projects. It therefore has a portfolio for each type of project and a separate prequalification model for each category.
Maintenance or Utility Projects
Maintenance or utility projects generally support ongoing products and services. When we prioritize these, they might not register as high on the benefits-value scale as some other types of projects.
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Nevertheless, most organizations earmark funding and resources for these projects. But which ones shall be undertaken?
We can’t use the same selection evaluation criteria because these projects will be evaluated to a different standard and set of ob- jectives than the other types of projects. For instance, there may not be a directly measurable value for return on investment (ROI) or net present value (NPV). If we set a single threshold for NPV,
Concept or Need Identified
Submit Proposal to PMO
Other Proposals
PMO Review
If Rejected by PMO
Ranking Appeal and
Sign-Off by GC
Project Selection
Project Charter
Initiate Project
Track Project Performance
PPM Executive Charter
PPM Process Defined
PPM Organization,
Governance Council
Changes to PMO
Select PPM
Tools Integrate Tools
Delay or Terminate?
PMO Review
Ongoing
Periodic Legend
One Time Sponsor
Prepares Business Case
Review Proposal Against Prequalification Preproject Tasks, by Sponsor
Strategic Planning Process
PPM Ranking and Selection
Criteria Proposal Review, Ranking, and Selection
Prequalification Standard
Strategic/Tactical Planning
Develop PPM Process
Execute and Track Project
Prequalification Template
Tactical Plans Buckets Risk Standards
Financial Resources
Prequalification Current
FIGURE3.2-1 The Prequalification Process
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maintenance projects might never pass the prequalification test.
The strategic plan probably doesn’t show anything for maintenance and utility efforts, although we would certainly expect the tactical plans to allocate resources and a budget.
For this category, the prequalification criteria consist more of need and justification data as opposed to cash-based benefits and alignment to strategies. The prequalification questionnaire might ask for evidence of what would suffer if the project were bypassed.
It might look for data that shows interdependence with other proj- ects. Some statement of benefits is certainly called for. Alignment criteria cannot be totally ignored. Would we want to select a main- tenance project to make improvements to a product or capability that is no longer supported by the firm’s strategies? Even for this group, the general PPM practices apply.
Growth or Enhancement Projects
Growth or enhancement projects are likely to fall nicely into medium- to-high benefit and high-alignment segments of the ranking cri- teria. By design, these should be projects that support strategic initiatives and represent increasing value. Such projects are needed to keep the firm in a solid competitive position.
For most organizations that employ PPM techniques, the growth or enhancement projects will comprise the bulk of the projects. You can expect serious competition among the proposed projects, mak- ing the portfolio planning process critical to efficient and effective project selection. The development of sound prequalification guide- lines will help to keep the project sponsors focused on the business objectives and the selection criteria. It will also make it more diffi- cult for them to get carried away with desired benefits, mistaking them for carefully evaluated benefits.
Setting thresholds and ranges that are aligned with the strate- gies and the tactical plans will be helpful. These should reflect bud- get and resource allocation objectives, as well as risk guidelines. The process requires that the high-level strategies be transformed into specific tactical plans, with clearly stated objectives and constraints.
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Transformation Projects
Transformation projects are the opportunities to move the firm to a new level or to introduce new products or services that will domi- nate the marketplace. This category requires extraordinary dili- gence starting at the proposal phase. A prequalification model can also be used here, but only as part of the evaluation process. As- suming that the proposed project is aligned with the strategies and guidelines, it will require the preparation of a full business case, complete with three scenarios: most likely, potential upside, and po- tential downside.
We can expect these projects to exhibit a higher risk profile.
However, the potential benefits can be so great as to place the proj- ect off the scale when we plot NPV or ROI. There is also a greater sensitivity to the benefits and risk data for transformation projects, especially when there is an indefinite window of opportunity. Mul- tiple scenarios, as presented in the business case, will produce con- siderably different values for benefits and risk. The range of these values is in itself a value to be considered. A conservative strategy, if that is the culture, would have you rank the more sensitive projects (those with a higher differential between case extremes) a bit lower than a project that has less uncertainty. You can’t mix transformation-type projects with growth projects or use the same prequalification criteria for both types of projects.
Transformation projects may be “bet the firm’s future” projects.
Failure to select the right projects in this category will lead not only to failure of the project, but will also waste the monetary and human resources that could have been used for a better opportunity. It is dif- ficult to sustain business growth without periodic transformation projects. To choose wisely is to protect the future of the enterprise.
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