Project Viability Vs. Prioritization: What's The Difference?

Hey guys! Ever wondered how companies decide which projects are worth pursuing and which ones get left on the drawing board? It all boils down to two key processes: viability assessment and project prioritization. While they might sound similar, they address different questions and use different criteria. Let's break it down in a way that's easy to understand.

Understanding Project Viability

Project viability, at its core, is about determining whether a project is feasible and worth undertaking. It's a go/no-go decision based on a thorough evaluation of various factors. Think of it as a health check for your project idea – does it have what it takes to survive and thrive? There are several critical criteria considered when assessing project viability, which ensures that resources are not wasted on ventures that are unlikely to succeed.

One of the primary aspects of project viability is economic feasibility. This evaluates whether the project will generate sufficient financial returns to justify the investment. Key considerations include projected revenues, costs, and profitability metrics such as return on investment (ROI), net present value (NPV), and internal rate of return (IRR). A project is deemed economically viable if it demonstrates the potential to deliver acceptable financial gains. For example, consider a company planning to launch a new product. The economic feasibility study would involve estimating the market demand for the product, projecting sales revenues, and calculating the costs of production, marketing, and distribution. If the projected ROI is significantly higher than the company's cost of capital, the project is likely to be considered economically viable. Remember, a great idea isn't enough; it needs to make financial sense! Moreover, technical feasibility assesses whether the organization has the necessary technical expertise, resources, and infrastructure to execute the project successfully. This includes evaluating the availability of skilled personnel, appropriate technology, and necessary equipment. Projects that require cutting-edge technology or specialized skills may face significant technical challenges, which could impact their viability. For instance, a construction company considering building a high-rise building would need to assess whether it has the engineering expertise, construction equipment, and skilled labor required to complete the project safely and efficiently. If the company lacks the necessary technical capabilities, it may need to invest in training, hire external experts, or even reconsider the project altogether. Don't forget about legal and regulatory compliance which plays a crucial role in project viability. Projects must comply with all applicable laws, regulations, and industry standards to avoid legal challenges and penalties. This includes obtaining necessary permits and licenses, adhering to environmental regulations, and ensuring compliance with labor laws. Projects that involve significant legal or regulatory hurdles may face delays, increased costs, and even cancellation.

Diving into Project Prioritization

Once you've established that several projects are viable, the next step is project prioritization. This involves ranking projects based on their relative importance and potential value to the organization. Project prioritization helps ensure that resources are allocated to the projects that will deliver the greatest strategic benefits. Prioritization is key because, let's face it, resources are always limited. You can't do everything at once, so you need a way to decide what gets done first. Several factors influence project prioritization, including strategic alignment, potential return, risk, and resource availability.

Strategic alignment refers to the degree to which a project supports the organization's overall goals and objectives. Projects that directly contribute to strategic priorities are typically given higher priority. For example, a company focused on expanding its market share may prioritize projects that involve launching new products in target markets. Potential return, including financial and non-financial benefits, is a critical factor in project prioritization. Projects with the highest potential return, such as increased revenue, cost savings, or improved customer satisfaction, are generally given higher priority. Companies often use quantitative methods such as ROI and NPV to assess the potential return of different projects. Also, it is important to assess the risk associated with each project when prioritizing. Projects with lower risk profiles are typically favored over those with higher risks. Risk factors may include technical challenges, market uncertainty, and regulatory hurdles. Organizations often use risk assessment techniques to identify and evaluate potential risks and develop mitigation strategies. Finally, resource availability is a practical consideration in project prioritization. Projects that can be executed with existing resources are typically given higher priority than those that require significant additional resources. Resource constraints may include budget limitations, staffing shortages, and limited access to equipment or technology. Organizations need to carefully assess their resource capacity and allocate resources to projects accordingly.

Key Differences: Viability vs. Prioritization

Okay, so now that we've looked at each concept individually, let's highlight the key differences between project viability and project prioritization. Think of it like this: Viability is the gatekeeper, and prioritization is the ranking system.

• Focus: Viability focuses on feasibility, while prioritization focuses on importance. Viability asks, "Can we do this project successfully?" Prioritization asks, "Should we do this project now, compared to other options?"
• Outcome: Viability results in a go/no-go decision. Prioritization results in a ranked list of projects. The viability assessment will either approve or reject a project, based on whether it meets the minimum criteria for success. The prioritization process takes a list of viable projects and ranks them in order of importance, helping to determine which projects should be undertaken first.
• Criteria: Viability criteria are often absolute thresholds (e.g., minimum ROI, acceptable risk level). Prioritization criteria are often relative comparisons (e.g., which project has the highest ROI compared to others). For example, a viability assessment might require a project to have an ROI of at least 15% to be considered viable. In contrast, a prioritization process might compare the ROIs of several viable projects and rank them accordingly.
• Timing: Viability is typically assessed before prioritization. You wouldn't want to spend time ranking projects that aren't even feasible in the first place! The viability assessment is a prerequisite for the prioritization process, ensuring that only feasible projects are considered for ranking.

Examples to Illustrate the Difference

Let's look at a couple of examples to solidify your understanding:

Example 1: A Software Company

A software company is considering two projects:

• Project A: Developing a new mobile app for a niche market. Viability assessment shows a strong market demand, reasonable development costs, and a projected ROI of 20%. It passes the viability test.
• Project B: Implementing a new enterprise resource planning (ERP) system. Viability assessment reveals significant technical challenges, high implementation costs, and a projected ROI of 10%. It also passes the viability test, but with caveats.

Now, for prioritization:

• The company's strategic goal is to improve operational efficiency. While both projects are viable, Project B (the ERP system) aligns more closely with this strategic goal. Therefore, Project B might be prioritized higher, even though it has a lower ROI.

Example 2: A Manufacturing Company

A manufacturing company is considering two projects:

• Project C: Upgrading existing machinery to improve production capacity. Viability assessment shows a clear need for increased capacity, readily available technology, and a projected ROI of 18%. It's viable.
• Project D: Expanding into a new international market. Viability assessment reveals significant political and economic risks, high market entry costs, and an uncertain ROI. After careful consideration, Project D fails the viability test due to excessive risk.

In this case, only Project C proceeds to the prioritization stage because Project D was deemed unviable. The company can then compare Project C to other viable projects and determine its relative priority based on strategic alignment, potential return, and other factors.

In Conclusion

So, there you have it! Project viability and project prioritization are distinct but complementary processes. Viability determines if a project is worth doing, while prioritization determines when it should be done. Mastering both concepts is crucial for effective project management and resource allocation. By understanding the criteria and differences between these two processes, organizations can make informed decisions about which projects to pursue, maximizing their chances of success and achieving their strategic goals. Keep these distinctions in mind, and you'll be well-equipped to navigate the complex world of project selection and execution!