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M2Topic2 Criteria For Project Selection and Project Management Selection Model NEW

This document discusses criteria for project selection and project management selection models. It explains that companies need to evaluate and select projects that fit their strategic objectives while competing for limited resources. Both numeric and non-numeric models are used, with numeric models using financial metrics and non-numeric models using other data. Common factors for evaluation include production, marketing, financial, personnel, and administrative factors. Examples of numeric models discussed are payback period and discounted cash flow models. The advantages and disadvantages of profitability models are also outlined.

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Melisa May Ocampo Ampiloquio
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160 views9 pages

M2Topic2 Criteria For Project Selection and Project Management Selection Model NEW

This document discusses criteria for project selection and project management selection models. It explains that companies need to evaluate and select projects that fit their strategic objectives while competing for limited resources. Both numeric and non-numeric models are used, with numeric models using financial metrics and non-numeric models using other data. Common factors for evaluation include production, marketing, financial, personnel, and administrative factors. Examples of numeric models discussed are payback period and discounted cash flow models. The advantages and disadvantages of profitability models are also outlined.

Uploaded by

Melisa May Ocampo Ampiloquio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROJECT MANAGEMENT

Module 2
Strategic Management and Project Management Selection
Topic 2
Criteria for Project Selection and Project Management
Selection Model
by:
Dr. Madel Miraña-Poot
Criteria for Project Selection
• Each project has different risks, benefits and costs – often
much uncertainty
• Companies need to be able to evaluate and select those
projects that most closely fit the firm’s strategic objectives
• Always done in the context of competing for limited
resources
• Project selection models are used
• Models abstract the relevant issues about a problem
from the mass of detail in which the problem is
embedded
• Models help to make rational decisions.
Two Basic Types of Project Selection Model

Numeric
•Use financial metrics such as cash flow, profit.
Non-numeric
• Do not use numbers as inputs into the model, but other
data or considerations
• The tendency to rely solely on numeric profitability
models can be a serious mistake
•If the estimated level of goal achievement is sufficiently large,
the project is selected.
Project Evaluation Factors

• Production factors
• Marketing factors
• Financial factors
• Personnel factors
• Administrative and Miscellaneous factors
Numeric Models
•Models that return a numeric value for a project that can be
easily compared with other projects

•Two major categories of numeric models:


•Profit/profitability
•Scoring
Profitability Models
Models that look at costs and revenues – there are several
models, we will look at two in a bit more detail
•Payback period (PB)
•Discounted cash flow (NPV)
Payback period example
• The Payback Period = the length of time until the original
investment has been recouped by the project

Project cost Php 100,000


Payback period = ------------------ = ----------------- = 4
Annual cash flow Php 25,000

• The lower the payback period the better – exposure / risk


to the firm is minimized
Advantages of Profitability Models in general

• The undiscounted models (such as Payback Period) are


easy to use and understand
• Based on readily available accounting data and forecasts
• Familiar and well understood by business decision makers
• Can give a go/no-go indication, because they are based on
“absolute” inputs
• Some models can be modified to include risk
Disadvantages of Profitability Models in general
• They ignore non-monetary factors except risk
• Some ignore time value of money
• Discounting models are biased to the short-term because
they reduce cash flows to present value
• Payback models ignore cash flow after payback
• They rely on accurate estimations of cash flow (which can
be difficult)
• They cannot deal with a lot of the complexity of the modern
firm – reliance on financial data only
Reference:
• Project Management: A Managerial Approach 8th edition
By Jack R. Meredith and Samuel J. Mantel, Jr.
Published by John Wiley & Sons, Inc.

THANK YOU
Stay safe and GOD bless!

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