The most important factor to consider when choosing a team is positional skill set.  No team will be successful if it is filled entirely with tiny point guards or lumbering centers.  You will need to choose a combination of players that can fill each of the 5 positions on the floor. 
Here’s how to do it:“  For each player trying out, choose what you feel would be the ideal position(s) for them to fill.  Below, I have listed the ideal criteria for each of the 5 positions.  Rank each player on how well they fit those criteria.
1-Position (Point Guard, PG)
On a 12 player team, you should have at least 3 [tag]point guards[/tag].  These players will be your primary ballhandlers.  They should be comfortable dribbling and passing the ball under heavy defensive pressure.  The point guard will be your team’s quarterback on the floor, so they should have a general understanding of [tag]basketball strategy[/tag] and have the ability to direct their teammates on the floor and execute set plays.  1-Guards must have strong on-the-ball defense, being able to contain their opponents off the dribble.  Shooting range and general scoring ability are important, but not essential.  More importantly, the point guard should be able to penetrate off the dribble and distribute the ball to other players in high-percentage scoring areas (i.e. under the basket, open jumpshots etc.).  Lastly, your point guard should be mentally tough; he will often be called upon to handle the ball in high-pressure situations, and should be confident in this role.

2-Position (Off Guard, Shooting Guard, SG)
On a 12 player team, you should have at least 2 off guards.  Your off guards will sometimes be called upon to handle the ball in lieu of the point guard, so they should also be comfortable in the open court under defensive pressure.  Shooting guards should be able to shoot the ball from the outside, preferably with three point range.  They should have the ability to score off the dribble, defend well, and finish on the fast break.

3-Position (Small Forward, SF)
On a 12 player team, you should have at least 2 small forwards.  These players should be versatile, with the ability to play either the off guard or power forward positions (but not necessarily both).  Small forwards will be called upon to score the ball, so they should have a variety of offensive skills.  They should be comfortable enough with the ball to help break full court pressure if necessary.  They should have shooting range from at least 15 feet.  Ideally, your small forward is a slasher, with the ability to beat his defender off the dribble and score in the lane.  He should also be able to move without the ball and get up the court to finish on fast breaks.
4-Position (Power Forward, PF) & 5-Position (Center, C)
I have grouped these 2 positions together because their skill sets at the high school level and below will generally be the same.  Power forwards and centers (or “post players”) are generally your tallest players.  You will need 4 or 5 of these players on a 12 player team.  They should be strong and physically aggressive, allowing them to defend against your opposition’s largest players.  Post players should be effective rebounders, with the ability to establish and maintain position under the basket.  The most effective post players will possess good footwork and soft hands.  They should be able to finish around the basket with heavy defensive pressure.  Shooting range and ballhandling ability are nice bonuses, but are by no means essential for post players.

Identifying the presence of these skills is best accomplished using a drill called “Stations” (included in my sample Basketball Tryout Plan).  Watch your players closely to determine if they have the skill set to fit the positions available on your team.