Project Management Project Selection Model

Topics: Net present value, Management, Project management Pages: 8 (1789 words) Published: May 8, 2013
Assignment 1 Project Management
Kerry Pilcher

TO: Director and Research Associates of Te Au Rangahau 
FROM: Kerry Pilcher Project Analyst 
DATE: 20/03/2013
SUBJECT: Investment Portfolio Analysis

The basic goal of project portfolio management is to select the projects and programmes out of a set of necessary and available projects within the organization whose realization helps achieve the strategic organizational goals, taking into account the available resources (Beric, Jovanovic & Jovanovic 2012). In order to select the correct investment project with the greatest profitability, technological opportunity, (least) development risk and appropriability (to organisational strategies) (Meredith & Mantel 2006), analysis of project selection options will assist in the decision on where to invest the proposed $20,000. Both numeric and non-numeric project selection models will be discussed through this memo with the focus being on finding the most appropriate option indicating the most accurate forecast results for investment proposal’s A and B.

Project Selection Models need to meet certain criteria as displayed in figure 1.0 below. (Pinto, 2010)

* 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 * Comparability - must be easy and convenient to gather and sort for uses of comparability

Non-numerical project selection models

The Comparative Benefit Model

The Comparative Benefit Model analysis projects side by side when multiple options come to table. Using a variety of comparative ranking tools e.g. Q-Sorting, forced comparison, murder board, grid profiling etc, (COST MANAGEMENT 642 - Paper 5 (nd)) the option with the most benefit to the company is selected. The two investment proposals show different monetary gains at quite different rates. Project A displays consistent returns of $3200 for the first seven years where project B shows the payback period every year to be inconsistent and fluctuates.

Fig 1. Forecast cash flow for both projects per year

Advantages to the Comparative Benefit Model

* That a large number of projects can be analysed
* Projects from different departments with conflicting desired results can be compared and prioritised * It is easier for senior management to make decisions on which department to allocate funds

Disadvantages to the Comparative Benefit Model

* Often departments not involved directly with company strategy get sidelined e.g. HR or accounting * No precise way to define or measure “benefit” to the company * Some departments may always come out on top as priority e.g. IT development when numerical values are not taken into account using the Comparative Benefit Model

The Competitive Necessity

The decision to invest in either projects A or B can be aided by using the Competitive Necessity, in the greater benefit to achieving/maintaining competitive advantage in line with Te Au Rangahau objectives will be selected.

Either project can be measured to future benefit using criteria applicable.

Economies of scale: Less wastage and improved efficiency
Governance: Controls more effectively applied, governed and adhered to. Optimization: Value chains optimized by understanding the effect of change to individual areas and process. Delegation: Areas have individual and specific responsibilities controlled through internal process improvement and effective management of resources. Agility: Departments remaining flexible can continually be improved and built onto. (Cummins, 2008)

With adherence to each criterion analysed by the organisation director and board of...
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