I hope the following information is helpful. Instead of using strategy group 85, on the material, I used strategy group 21. I recommend copying strategy group 21 and requirement class 80 if custom settings are needed, which in my case I needed to add custom network type ZS04 to requirement class 80.
After making the above mentioned changes, project was successfully created from sales order.
Strategy Groups
SAP has predefined strategy group 21 (with strategy 21) for the link between sales
documents and projects.
Notes: If you do not maintain the strategy group for the material in the sales and
distribution document item, you cannot assign that item to a WBS element.
Alternatively, you can assign the strategy group to a material using MRP group 0021 (also
predefined).
Requirements Classes
SAP has predefined requirements class 80 with account assignment category D
(assignment to WBS element) for the link between projects and sales and
distribution documents. Requirements class 80 is assigned to strategy 21 using
requirements type KP (also predefined).