This sections describes the various numeric and non numeric methods of project selection with simple explanation.

1. BA5028 – Project Management
By Dr.M.Manikandan

2. Project Selection
Delivering the wrong project on time and on budget with 100% of
its scope completed to the defined quality standards is a complete
waste of money!
But what if we chose the
wrong project?????????

3. Project Selection - Meaning
 Project selection is the process of evaluating individual projects or groups of projects, and then
choosing to implement some set of them so that the objectives of the parent organization will
be achieved.
 The proper choice of investment projects is crucial to the long-run survival of every firm.
 Daily we witness the results of both good and bad investment choices.
Then how the selection should be????????
A Multi-Criteria Analysis (MCA) is when a project is evaluated by more than just monetary terms. It
is a form of appraisal that, in addition to monetary impacts, measures variable such as material
costs, time savings and project sustainability as well as the social and environmental impacts that
may be quantified but not so easily valued.

4. Criteria of Project Selection Models
Capabilit
y
Realism Flexibility
Ease of
Use
Cost
Easy
Computer-
isation
 Realism - reality of manager’s decision
 Capability - able to simulate different scenarios
and optimize the decision
 Flexibility - provide valid results within the range
of conditions
 Ease of Use - reasonably convenient, easy
execution, and easily understood
 Cost - Data gathering and modeling costs should be
low relative to the cost of the project
 Easy Computerization - must be easy and
convenient to gather, store and manipulate data in
the model

5.  Numeric models
Competitive
Necessity
ProjectselectionMethods
Sacred Cow
Operating
Necessity
Product Line
Extension
Comparative
benefit
model
project is suggested by a senior and powerful
official in the organization
Project is required to keep the system running
Project is necessary to sustain a competitive position
projects are judged on how they fit with current
product line, fill a gap, strengthen a weak link, or
extend the line in a new desirable way.
several projects are considered and the one with the
most benefit to the firm is selected

6. Numeric models

7. Unweighted 0-1 Factor Model
 A set of relevant factors is selected by management and then usually listed in a preprinted
form.
 One or more raters score the project on each factor, depending whether or not it qualifies for
an individual criterion.
 The criteria for choices are:
 A clear understanding of organizational goals
 A good knowledge of the firm’s potential project portfolio
 Advantage of this model is that it uses several criteria.
 Disadvantages are that it assumes all criteria are of equal importance and it allows for no
gradation of the degree to which a specific project meets the various criteria.

9. Unweighted 0-1 Factor Model - Example

10. Unweighted Factor Scoring Model
 This model is used by constructing a simple linear measure of the degree to
which the project being evaluated meets each of the criteria.
 Often a five-point scale is used to evaluate the project.
 A variant of this selection process might choose the highest scoring project.
 The criteria are all assumed to be of equal importance.

11. Project
Criteria
Project A Project B Project C Project D
A Payoff
Potential
3 1 2 3
Lack of Risk 1 2 2 3
Safety 3 2 1 2
Competitive
Advantage
2 2 1 2
Total 9 7 6 10
Weighted Factor Model - Example
 High = 3
 Medium = 2
 Low = 1

12. Weighted Factor Scoring Model
 A weighted factor scoring model is when each of the relevant factors selected by management
is given numeric weights to reflect the importance of each of them in the project.
 The weights may be generated by any technique that is acceptable to the organization’s policy
makers.
 Each project receives a score that is the weighted sum of its grade on a list of criteria. Scoring
models require:
 agreement on criteria
 agreement on weights for criteria
 a score assigned for each criteria

13. Assessment Criteria Importance Weights
1. Payoff potential 4
2. Lack of risk 3
3. Safety 1
4. Competitive advantage 3

14. Project Criteria Project A Project B Project C Project D
A Payoff Potential 12 4 8 12
Lack of Risk 3 6 6 9
Safety 3 2 1 2
Competitive
Advantage
6 6 3 6
Total 24 18 18 29
Score X weight
Take the score from the previous table and multiply that score with the weightage

15. Net Present Value
Net present value (NPV) is the difference between the present value of cash inflows
and the present value of cash outflows over a period of time. NPV is used in capital
budgeting and investment planning to analyze the profitability of a projected
investment or project.

16. Internal Rate of Return
The internal rate of return is a discount rate that makes the net present value (NPV) of all
cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the
same formula as NPV does.

17. Cost Benefit Analysis
A cost-benefit analysis is a process businesses use to analyze decisions. The business
or analyst sums the benefits of a situation or action and then subtracts the costs
associated with taking that action.

18. Payback Period
The payback period refers to the amount of time it takes to recover the cost of an
investment. Simply put, the payback period is the length of time an investment
reaches a break-even point. The desirability of an investment is directly related to its
payback period. Shorter paybacks mean more attractive investments.

19. Discounted Payback Period
Discounted payback period is a capital budgeting method used to calculate the time
period a project will take to break even and recover the initial investments. The
calculation is done after considering the time value of money and discounting the future
cash flows.

20. Return on Investment (ROI)
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. ROI tries to
directly measure the amount of return on a particular investment, relative to the
investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by
the cost of the investment. The result is expressed as a percentage or a ratio.
For Example,
For example, suppose Joe invested $1,000 in Slice Pizza Corp. in 2017 and sold his stock
shares for a total of $1,200 one year later. To calculate his return on his investment, he
would divide his profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for a ROI
of $200/$1,000, or 20 percent.

21. Murder Board
A murder board is also known as a scrub-down. You constitute a murder board, which is a
committee that comprises of senior managers and subject matter experts from different areas.
The murder board scrutinizes the project to find reasons why the project should not be selected.
You must defend the project and counter all the queries of the board members.
The murder board makes sure that every aspect of the project is looked into and reviewed in
depth. The review includes the following aspects of the project:
 Problem statement
 Assumptions
 Risks
 Mitigation
 Proposed solution

22. Peer review
Peer review is the method of project selection that you use to validate the project with the help of
peers. The peer group in such reviews are experts from various areas of project management,
however, unlike the murder board, this group is not as ruthless in reviewing a project.
In this method, the main objective is not to kill the project but to check the viability of the project
and add value from learning of the peer group.
In your personal capacity, you tend to ignore or get biased about your ideas. As a result, you might
not foresee an issue arising later in the project life cycle. To avoid such unpleasant scenario, it is
always a good idea to get inputs from the peers at an early stage.