Project Selection Methods

Question 1

What is the definition of a decision model? What are it’s primary categories?

Answer 1

• Method of project selection that helps managers make decisions regarding the use of limited budgets and human resources
• Uses a fixed set of criteria agreed on by the project selection committee to evaluate the project requests.
• Two common categories:
  
  1. benefit measurement methods
  2. constrained-optimization models

Question 2

What is a benefit measurement model used for?

Answer 2

• 1 of 2 primary categories of decision models
• Provide a means to compare the benefits obtained from project requests by evaluating them using the same criteria.

Question 3

What are the two common categories of decision models?

Answer 3

Two common categories:

1. Benefit measurement methods
2. Constrained-optimization models

Question 4

What are the four common benefit measurement methods?

Answer 4

1. Cost-Benefit Analysis
2. Scoring Model
3. Payback Period
4. Economic Model

Question 5

What is cost-benefit analysis?

Answer 5

Compares the cost to produce the product or service to the financial gain (or benefit) the organization stands to make as a result of executing the project.

Question 6

What is a scoring model?

Answer 6

• 1 OF THE 4 Benefit Measurement Methods
• Rates projects based on predefined list of criteria .
• Each criteria is given
  
  1. Scoring range
  2. Weighting factor:
     
     • Accounts for the difference in importance of the various criteria.
• The final score = rating/weighting factor of each criteria.
• Benefit of the scoring model is that you can place a heavier weight on a criterion that is of more importance.

Question 7

What is a payback period?

Answer 7

• 1 OF THE 4 Benefit Measurement Methods
• Identifies the length of time it takes for the organization to recover all the costs of producing the project.
• Compares initial investment to expected cash inflows over life of project
• Determines how many time periods elapse before the project pays for itself.
• Least accurate benefits measurements method

Question 8

What is an economic model?

Answer 8

• 1 OF THE 4 Benefit Measurement Methods
• cash flow techniques that provide data on the overall financials of the project.
• I.e.:
  
  • Discounted Cash Flow
  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)

Question 9

What is a dicounted cash flow?

Answer 9

• Compares value of project’s future worth to today’s dollars (worth)
• USED IN Economic Models

Question 10

What is NPV?

Answer 10

Net Present Value:

• Calculates the organization’s expected revenues over life of project
• If >0 = accept project
• USED IN Economic Models​

Question 11

What is each criterion given in a scoring model?

Answer 11

1. Scoring range
2. Weighting factor:

• Accounts for the difference in importance of the various criteria.

Question 12

What category is a Constrained Optimization Model part of?

Answer 12

• 1 of 2 primary categories of decision models
• Complex math models (beyond scope of book)