The corporate world operates almost entirely on projects. Opening a branch is a project; implementing a new management system is a project; and launching a new department in the company is a project.
Among so many initiatives, how can you determine which ones are priorities for your company? That's what we'll cover in today's post!
GUT matrix
The GUT matrix is one of the simplest tools for project prioritization. You list the initiatives that need to be done, classifying them according to three criteria: gravity, urgency, and trend.
Generally, this methodology is used to solve problems, which is why we consider the severity. If the project is not implemented, what will be the negative impacts?
The urgency is related to how long a company can wait to have a project implemented, and the tendency is how much the problem can grow if the project is not completed.
But what if the project doesn't stem from a problem? Keep reading, and we'll see!
Alignment between the project and the company's objectives
One of the criteria for prioritizing a project is to check if it aligns with the company's strategic objectives. If your current objective is to increase brand awareness, would opening a new branch contribute to that, or would it dilute the efforts to become known?
Good ideas are born at any moment, but not all of them can or need to be put into practice immediately. Before anything else, it's necessary to know if the company truly has an interest in the initiative and how it will benefit from it.
Use an analytic hierarchy process
The AHP (Analytic Hierarchy Process) method is widely used in project management because it supports complex decision-making. You create a comparative framework to understand the benefits and impacts of each project, creating a matrix.
Imagine five projects: A, B, C, D, and E. The comparison is made as follows:
| A x B A x C A x D A x E | B x C B x D B x E | C x D C x E | D x E |
In each of these comparisons, you determine which project is more important. This way, you reach a conclusion about which ones should be prioritized and which ones should not.
Make the investment analysis
Another widely used method for prioritizing projects is investment analysis, which helps determine the potential return on investment (ROI) of each project over time.
To perform this type of analysis, in-depth knowledge of financial mathematics is required, especially regarding the calculation of payback, IRR, and NPV.
Payback is the average time it takes to recover the investment made in the project. Let's say the investment is R$ 10 thousand and the timeframe is 12 months. The expected annual revenue from this project is R$ 5 thousand.
PAYBACK = INVESTMENT / EXPECTED REVENUE
PAYBACK = 2 YEARS.
This means your company will recoup the initial investment in 2 years. By doing this calculation for all the projects in your portfolio, you can determine which one will bring results in the shortest amount of time and with the highest profitability.
The calculation of NPV (Net Present Value) can also help in prioritizing projects. Let's say you are implementing new management software in the company and it is expected to generate progressive revenue of R$500 per month. Then you will have:
Month 1: R$ 500;
Month 2: R$ 1.000;
Month 3: R$ 1,500 and so on.
Calculating NPV means bringing those values to the present moment. For those who are not logarithm experts, it's best to use a financial calculator to perform this calculation. If the result is greater than zero, the project is viable. If it's less than zero, the project is unviable.
Finally, you can calculate the IRR (Internal Rate of Return), which consists of calculating the interest rate that would nullify the NPV. Once again, a financial calculator is your best option.
The logic is to compare the market's rate of return if you took the project money and made a financial investment with the potential return that the project has for the company.
If the project remunerates capital with a value above the financial investments available in the market, it is better to execute the project. If the value is lower, it is better to leave your money earning interest in the bank.
Do you use other strategies to prioritize projects in your company? Tell us about it!
