Project Selection

The process of analyzing and selecting projects that are both aligned with an organization's objectives and enhance its performance is known as project selection. You can use numeric or nun-numeric techniques.

Lest have a look at non numeric techniques first.

1. The Sacred Cow

A project is suggested and pushed by senior officials in the organization. These decisions are not always best for the company. However they will be maintained until successfully concluded or until the head men admits the failure

2. The Operating Necessity

If a plant is threatened by the flood then you make decisions very quick in order to protect and keep your business running. If the project is required to keep certain part of business or system operating, the main question becomes: is it worth to save it and how much it will cost.

3. The Competitive Necessity

One method of selecting and prioritizing projects is by making decisions based on their competitive necessity. If a firm or organization wants to maintain a competitive position in a market area, modernization or rebranding of existing projects my be a priority. The decision to proceed with the project is driven by maintaining the company's competitive position in the market, regardless of the complexity of the planning process.

4. The Product Line Extension

The company uses this method to expand by expanding already existing product line. Organizations using value of the product which is already well established to market and introduce new choice for customers.

Two types of product line extensions:

Horizontal extension - Adding different colour, ingredients to change the product but maintaining the same product quality and price.

Vertical extension - By changing price and quality to create cheaper or more expensive product.

5. Comparative Benefit Model

According to this selection model, there are number of projects that are being considered by the company. That subset of the projects that are selected by the senior management of the organization can provide the most benefits to the company. But comparing different projects is not an easy job.

6. Q-Sort Model

The Q-Sort model is one of the most straightforward techniques for ordering projects. All projects should be divided into three groups: good fair and poor. The main group is further subdivided into the two types of fair-minus and fair-plus if any group has more than eight members.

The projects within each type are ranked from best to worst when all types have eight or fewer members. Again the order is determined on the basis of relative merit. Responsible person (rater) may us some specific criteria's to rank projects or may use general overall judgment.

Financial Feasibility and Alternative Investments related to numeric technique.

5 numeric technique methods:

1. Payback period - estimated time for inflows from the project

2. Cost benefit analysis - Comparison of cost and benefits

3. Financing cost - How much it will cost to run the project (including wages, marketing etc..)

4. Discount Cash Flow methods - the value of an investment today, based on projections of how much money it will generate in the future.

5. Average rate of return - Cost of investment against the profit

Cost Benefit Analysis

Generally speaking, cost-benefit analysis is the process of comparing the projected or estimated costs and benefits associated with a project decision to determine whether it makes sense from a business perspective.

Cost: Benefits:

Intangible costs direct

opportunity costs indirect

costs of potential risks total benefits

direct costs net benefits

indirect costs