Unit 7 - Project selection Criteria

Question 1

What are the 6 Criteria used when constructing a project selection model?

Answer 1

1. Realistic
2. Capable
3. Flexible
4. Easy to use
5. Low cost
6. Comparable

Question 2

Define the “Realistic” Criteria, and provide an example

Answer 2

Accurately reflects the way the organization does business

Appropriate for the level of resources, capabilities, and external environment of the organization

Example: Using a profitability model when the organization is focused on market share growth would not be appropriate.

Question 3

Define the “Capable” Criteria, and provide an example

Answer 3

*Uses factors that are relevant to the organization

*You would not expect one model to cover all dimensions of a
project; you would want to use models that cover their dimension
comprehensively.

Example: For organizations with a long-term value perspective, the
net present value model provides a rigorous evaluation of a project’s
future cash flows.

Question 4

Define the “Flexible” Criteria, and provide an example

Answer 4

*The model should provide accurate measures across a reasonable
range of conditions.

Example: The model would allow for changing conditions where the
cost of a new government regulation must be factored into the
analysis.

Question 5

Define the “Easy to use “ Criteria, and provide an example

Answer 5

Provide results in a reasonable amount of time

*Results should be easily understood by the decision-makers.

Example: Use models that provide measures that the decision
maker can easily apply, such as dollars, months, or percentage
change.

Question 6

Define the “Low cost” Criteria, and provide an example

Answer 6

The costs of gathering data and running the model should be low
relative to the scale of the project.

Example: A model that requires hiring a consultant to run and
interpret may not be cost-effective for smaller projects.

Question 7

Define the “Comparable” Criteria, and provide an example

Answer 7

*The model should be usable across a range of projects such that
the outcomes of the model can be used to compare projects.

Example: Using a profitability model for one project and a
qualitative scoring model for another would not allow the decision
maker to analyze the projects relative to each other

Question 8

What are the two general categories that project selection models fall into?

Answer 8

1. Numeric
2. Non-numeric (non-financial)

Question 9

What is a key difference between numeric and non-numeric project selection models?

Answer 9

non-numeric project selection models focus on selection criteria that
are not limited to traditional numeric performance measures
(return on investment [ROI], profit, revenue, etc.).

Question 10

What are 4 non-numeric project selection models?

Answer 10

1. Competitive Necessity
2. Operating Necessity
3. Scared Cow
4. Checklist

Question 11

Explain the checklist model for project selections.

Answer 11

Checklist models are a frequently used non-numeric method for project selection.

• This method uses a series of questions to evaluate each potential project.
• Each project would be analyzed using the same set of questions, and then the answers to the questions would be compared to determine whether a project is accepted or rejected.
• This approach to project selection affords the company great flexibility.
• Questions may be generated that cut across organizational boundaries and cover a wide range of operational and strategic issues.

Question 12

What are some examples of possilbe checklist model questions?

Answer 12

How much will the project cost?

How long will the project take to complete?

What outcomes will be achieved?

How does the project align with the strategic objectives of the company?

What resources will the project require?

Question 13

What are the numeric selection Criteria?

Answer 13

1. Profit/profitability -use some aspect of measuring the financial returns of the project relative to the cost of the project or the time required to break even.
   i.e., payback period, net present value, and internal rate of return
2. Profit/profitability

Question 14

Define Scoring models.

Answer 14

Scoring models- allow the company to integrate multiple criteria in
analyzing project proposals.

These types span from basic scored criteria to including weights on each criteria so that some criteria are emphasized over others.

Question 15

What is the weighted Factor Scoring Model?

Answer 15

A popular enhancement to the scoring model approach is the weighted factor scoring model.

• Each criterion is treated equally.
• Assigns a weight to each criterion, which places some
  emphasis on selected criteria when calculating the
  total project score.

Question 16

What are the Financial Concepts for Project Selection?

Answer 16

1. Opportunity Cost
2. Time Value of Money
3. Payback Period
4. Internal Rate of Return (IRR)
5. Net Present Value (NPV)

Question 17

Define “Opportunity Cost”

Answer 17

When an organization spends money on a project, then other possible uses of the money would need to wait

Question 18

Define “Time value of money”

Answer 18

The concept that money is worth more to an organization now than in the future.

Question 19

Define “Payback period “

Answer 19

The amount of time required to earn back the cost of doing the project

Question 20

Define “Net present value (NPV) “

Answer 20

The financial measure of the total future benefits of a project
minus the costs of the project