Case Study 31: Keflavik Paper Company ✓ Solved

Case Study 31 Keflavik Paper Companykeflavik Paper Is An Organi

Keflavik Paper is an organization that has lately been facing serious problems with the results of its projects. Specifically, the company’s project development record has been spotty: While some projects have been delivered on time, others have been late. Budgets are routinely overrun, and product performance has been inconsistent, with the results of some projects yielding good returns and others losing money. They have hired a consultant to investigate some of the principal causes that are underlying these problems, and he believes that the primary problem is not how projects are run but how they are selected in the first place. Specifically, there is little attention paid to the need to consider strategic fit and portfolio management in selecting new projects.

This case is intended to get students thinking of alternative screening measures that could potentially be used when deciding whether or not to invest in a new project.

Assume that you are responsible for maintaining Keflavik’s project portfolio. Name some key criteria that should be used in evaluating all new projects before they are added to the current portfolio. What does this case demonstrate about the effect of poor project screening methods on a firm’s ability to manage its projects effectively?

Paper For Above Instructions

The Keflavik Paper Company has encountered significant challenges in its project performance, revealing a need for a more strategic approach to project selection and management. While it is imperative to have effective project execution, this case highlights that the foundation for success lies primarily in how projects are chosen before they even begin. A review of project selection criteria will illustrate how balanced evaluation techniques can improve the overall portfolio management and contribute to better organizational performance.

Understanding the Importance of Project Selection

The effective selection of projects is critical as it sets the tone for execution, resource allocation, and strategic alignment within any organization. The consultant's observations about the Keflavik Paper Company underscore the necessity of incorporating strategic fit and portfolio management considerations into the project selection process. Strategic fit ensures that projects align with the broader objectives of the organization, enabling resource allocation to initiatives that drive long-term success.

Key Criteria for Project Evaluation

In light of the issues faced by Keflavik Paper, several key criteria should be considered in evaluating new projects:

  • Strategic Alignment: Projects should directly support the organization's strategic goals. Each proposed project must be evaluated on how well it fits into the larger framework of the company's mission and objectives.
  • Market Demand: Assessing potential market demand is crucial. Projects should be backed by market research providing evidence that there is a strong customer need or interest in the product or service being developed.
  • Financial Viability: Although discounted cash flow is a common metric, a comprehensive financial analysis should include various techniques like payback period, internal rate of return (IRR), and net present value (NPV) to assess the project's overall viability.
  • Risk Assessment: Understanding the risks associated with each project is essential. A systematic risk assessment process should be implemented to identify potential barriers to success, including technical, operational, and market-related risks.
  • Resource Availability: Evaluate whether the necessary human, financial, and technical resources are available for the prospective project. Projects should be selected based on the organization's capacity to undertake them without negatively impacting existing commitments.
  • Return on Investment (ROI): Projects should be evaluated based on their potential return on investment, considering both direct financial returns and indirect benefits, such as brand enhancement or strategic positioning.
  • Stakeholder Impact: Analyze how each project will impact various stakeholders. Good projects often deliver value across a spectrum of stakeholders, including customers, employees, and shareholders.
  • Innovativeness: Evaluate the degree of innovation a project brings to the company. Projects that offer unique advantages or differentiate the organization from competitors can be valuable for long-term strategic success.

Insights from Poor Project Screening

The challenges faced by Keflavik Paper exemplify the detrimental effects of poor project screening methods. Relying excessively on a single evaluation technique, such as discounted cash flow, can lead to a narrow decision-making perspective that overlooks other critical factors influencing project success. Projects may be selected based on financial metrics alone, disregarding strategic alignment or market potential, which can ultimately compromise organizational efficacy.

Effective project management is dynamic, necessitating a multifaceted approach to project evaluation. Ignoring strategic and portfolio considerations can lead to higher rates of project failure, wasted resources, and decreased overall productivity. Consequently, businesses like Keflavik Paper must reassess and adapt their project selection methods to incorporate these broader perspectives. This shift not only mitigates risks but also fosters an environment where more successful ventures can thrive.

Conclusion

The case of Keflavik Paper Company serves as a sobering reminder of the crucial role that effective project selection plays in an organization's ability to manage its portfolio successfully. Adopting a holistic approach to evaluating potential projects, inclusive of strategic, financial, and market factors, can significantly enhance the likelihood of project success and improve overall performance. By refining their project screening methods, organizations can better navigate the complexities of portfolio management, reduce inefficiencies, and ultimately drive sustainable growth.

References

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