Nova Western Case Study

Topics: Net present value, Cash flow, Time value of money Pages: 3 (872 words) Published: December 11, 2012
Question 1

Both methods have their advantages and limitations. The divergence is mainly caused by the fact that the methods used in the case were insufficient to decide on the attractiveness of the projects. Moreover, as described in the chapter concerning the situation of pharmaceutical companies, more specific subcriteria could be used to make the scoring model more accurate. Finally, Nova Western should develop an enhanced screening model to take into account both methods and some additional criteria. Table 1 provides the following information about the strengths and weaknesses of both non-financial and financial methods.

Table 1. Strengths and Weaknesses of screening methods
Method| Strengths| Weaknesses|
Scoring model| * The model is more precise as it highlights certain criteria (weight) over others; * It is easy to use in the case of critical strategic goals that should be assigned to different project alternatives; * It is easy to understand and employ if used by top managers. | * The scale that is applied (from one to three in the case) is too inaccurate. Therefore, false assumptions may arise; * The model is dependent on the subjective view of the experts on the relevance of the selected criteria and the accuracy of the weight applied to them.| NPV analysis| * It is commonly used as the project selection method as it requires fewer assumptions; * It reflects financial performance of each project and identifies the projects that are more likely to generate profit in the future; | * It is not reasonable to use it for accurate long-term predictions, especially in case of uncertain business and economic environment;| Source: (Pinto, Project Management: Achieving Competitive Advantage, 2010, pp. 77-87)

Question 2

As previously mentioned, relying on only one method does not mean it provides the best and most accurate results. A combination of several methods, together with clearly defined objectives can lead to...
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