Project Selection - Qualitative Factors
Project Selection – Qualitative Factors
Introduction:
The selection of a project or a portfolio of projects constitutes one of the main problems that managers are faced with. Decision of selecting an engineering, construction or R&D project is often fundamental for business survival. Such decisions usually involve prediction of future outcomes considering different alternatives. These predictions are not known with certainty, which results in a high level of uncertainty in managerial decision-making. So project managers often have to face some degree of uncertainty caused mainly by the increasing volatility in interest and exchange rates, lifting trade barriers and development of new technologies in electronics, nanotechnology, biotechnology, etc…
Various objectives are usually considered when projects are evaluated, including economic desirability, technical, environmental, social and/or political factors. As the decision maker tries to maximize or minimize outcomes associated with each objective depending on its nature, the evaluation criteria could be of various natures. While financial measures (Net Present Value and Internal Rate of Return) are of quantitative type, the ones that reflect technical, environmental or social objectives are usually of qualitative nature. (Maciej Nowak, 2006)
In this document we will first identify and explain the non-financial factors an organisation must consider as part of any project economic evaluation. After that, we will evaluate the financial (quantitative) and non-financial (qualitative) models and techniques available to appraise investment projects.
Qualitative Factors
Whenever a project is to be evaluated, it is important to identify and understand the market demand whether it is static or fluctuating taking into account competition and its possible effects on the project’s market shares. Comparing the company’s performance and processes with those of its
Introduction:
The selection of a project or a portfolio of projects constitutes one of the main problems that managers are faced with. Decision of selecting an engineering, construction or R&D project is often fundamental for business survival. Such decisions usually involve prediction of future outcomes considering different alternatives. These predictions are not known with certainty, which results in a high level of uncertainty in managerial decision-making. So project managers often have to face some degree of uncertainty caused mainly by the increasing volatility in interest and exchange rates, lifting trade barriers and development of new technologies in electronics, nanotechnology, biotechnology, etc…
Various objectives are usually considered when projects are evaluated, including economic desirability, technical, environmental, social and/or political factors. As the decision maker tries to maximize or minimize outcomes associated with each objective depending on its nature, the evaluation criteria could be of various natures. While financial measures (Net Present Value and Internal Rate of Return) are of quantitative type, the ones that reflect technical, environmental or social objectives are usually of qualitative nature. (Maciej Nowak, 2006)
In this document we will first identify and explain the non-financial factors an organisation must consider as part of any project economic evaluation. After that, we will evaluate the financial (quantitative) and non-financial (qualitative) models and techniques available to appraise investment projects.
Qualitative Factors
Whenever a project is to be evaluated, it is important to identify and understand the market demand whether it is static or fluctuating taking into account competition and its possible effects on the project’s market shares. Comparing the company’s performance and processes with those of its