Project prioritization is a formal process for assigning priorities to projects. In every organization I've encountered, more projects are proposed than can be conducted. Projects aren't equal. Prioritization is a quantitative way to evaluate and rank projects that compete for capital and other limited resources.
If the prioritization process is properly designed, the project ranking will identify the project portfolios that create the greatest possible value for the capital resources made available. In addition to obtaining more value for less cost, organizations are implementing formal project prioritization to meet requirements for improved risk management and a desire for more transparent, objective, and defensible decision-making processes.
If there is no formal prioritization process, the informal approach used to select projects is likely to be inefficient, time consuming, contentious, and subject to gaming by the parties involved. The best project choices will not be made, resources will be wasted, and value will be left on the table. To be effective, the formal prioritization process must not only be accurate, it must be practical, understandable, and perceived as fair by all stakeholders.
For more, see my Prioritization Tutorial and this Overview of Theory and Methods. For in depth information, read my papers, especially Mathematical Theory for Prioritizing Projects, Improving the Prioritization Process, and Project-Selection Decision Models.