PROJECT SELECTION

  • Category:
    Management
  • Document type:
    Assignment
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1440

Project selection

Introduction

One of the biggest decisions that business organizations makes is those related to choosing the project to undertake within a pool of options. Once an organization makes a proposal, there are many factors that need to be taken into consideration before deciding to take up the venture or not. The most viable option selected must conform with the requirements and goals of the organization. Before a project is chosen, it is prudent to follow the project selection process to be able to choose the most viable option that will accrue many benefits to the overall performance of the organization. According to Graves, Ringuest & Medaglia (2013), project selection refers to the process used to assess different project options and to choose the venture that is deemed best fit. The process of project selection is an essentia aspect for project managers in assessing the feasibility and the viability of a project. The selection methods guide organizations in deciding and weighing a project against an alternative project. Selection is always based on feasibility, to assess the likelihood of the selected project to being a success. By paying precedence to feasibility during the selection process, it will mean that projects which are deemed easiest will be given first priority. Similarly, the measure of the benefits that will be accrued from the project is also assessed. This paper seeks to examine the project selection methods and to give a recommendation on the most viable option to select.

Analysis of project selection techniques

There are complex analytical and financial tools that the management can use to select amongst various projects. Such complex financial and analytical tools include techniques such as linear programming, integer programming, and dynamic programming; they are jointly known as constrained optimization methods. There are also more simplified techniques that can also be adopted by project managers in selecting a viable project and are referred as “benefit measurement methods” (Graves, Ringuest & Medaglia, 2013). This section will provide a brief highlight of the two techniques.

Benefit Measurement Methods

This project selection method focuses on the NPV of the anticipated cash inflow or outflow. Costs and benefits are mathematically analyzed the evaluated to other ventures to come up with an appropriate idea. Some of the techniques under this method include

Cost benefit analysis

Under this technique, the overall cost-benefit of the project that will be gained is ascertained and then compared to the total expenditure for the completion of the project (Graves, Ringuest & Medaglia, 2013). For instance, if a project is anticipated to cost an average of $ 2million to perform, and after the investment it is estimated to return a value of $ 2.5 million in proceeds, in the calculation the cost-benefit ratio will be 6:3 meaning after three investments it will return $6. The ratio can be simplified to be 1.5 depicting that the investment returns $1.50 for every $2 invested. Thus, it is a good indicator of the project’s viability.

Payback period

In this technique, the project manager determines the amount of time that will be spent to regain the initial investment from the project. For instance, if a project that is to cost an estimated amount of $100,000 is expected to have a return value of $10,000 per year, the payback period will be ten years. This technique is relatively efficient in calculating the period, however, its accuracy is not reliable due to factors such as inflation and changing currency levels.

Discounted cash flow analysis

Under this technique, the present value of a future return is determined. To have an estimation of the current value, we must know the expected period to recover the invested, the discount rate as well as the amount of money that will be recovered in the future. The formula PV=FV/(1+i)n (Graves, Ringuest & Medaglia, 2013).

Net present value

This model allows the project manager to see the net loss or gain that will be accrued in each period that is discounted in the current values. Therefore, future expenditures or gains are estimated for each proceeding year and discounted based on current interest rates and the time in which the revenues or costs will be realized. Typically, it is the difference between the current cash outflow and inflow of the project; the figure should always be positive. when compared with other projects, a project with a higher NPV should be given the priority.

Opportunity cost

The opportunity cost analysis can also be used to make a decision. Taking an example that can have a net return of $100,000 and another project has a potential to return $150,000. When the organization is unable to pursue the options concurrently One project can be selected and the second option forgone.

Scoring models

Projects can also be evaluated based on various weighted criteria and then coming up with an average score from the options (Graves, Ringuest & Medaglia, 2013). For instance, an organization can decide to have a criterion that focuses on the technical difficulty, profitability, risks involved, resource strain and stakeholder support. Then the project team will conduct an evaluation of the projects based on these criteria. The criteria can be placed in order of necessity or expressed as a percentage to collectively add up to 100% for instance, in this case, may be profitability can be accorded 40%, resource strain 20%, technical difficulty16%, risks at 15% and finally stakeholder support be given 10%.

The internal rate of return

This is another technique that can be used to establish the viability of business. It denotes the interest rate at which NPV is 0. it simply refers to the point at which the current present value outflow is the same value to the value of inflows. Projects with a higher internal rate of return are more recommended to be chosen over projects with lower IRR.

Constrained Optimization Methods

These techniques are mostly used for large projects that are complex in nature and require the use of complex mathematical models. Some of the techniques include the non-linear, linear, dynamic and integer programming.

Organizing a project team

For a successful selection process, there is always need to have a well-defined project team that is given the sole responsibility of assessing the different options to come up with the most viable project. example of a project team can be as follows;

Executive committee

Project Director

ReportReport 1Report 2Report 3

Steering committeee

Project Manager

Project office

Report 4Report 5Report 6

Functional Leader

Functional team leader

Technical team leader

Report 7Report 8

Report 9Report 10Report 11Report 12

Memberer

(Graves, Ringuest & Medaglia, 2013)

Recommendations for the EGCM case

As ascertained, there are two methods to assess the viability of a project. Most of the techniques as discussed under the methods that projects that are of low risks have a quick return on investment, a quick payback period, higher net present value, can easily blend into the organizational culture. Based on the analysis of the project selection techniques I can highly recommend EGCM to implement the first project. The first project can be viable because it easily fits into the organizational culture and operations this is deemed beneficial because the organizational structure will not have to be changed, implementing the second project will need a change in the organizational structure, and this will result in hiring of new personnel or lay other employees whose roles will have become redundant as a result of implementing the projects. Similarly, might also result to the laying off of expert employees, this will be costly for the organization as they will have to compensate and also acquire a new human resource that is knowledgeable and skilled about the specific project. The new employees might also need a competitive salary. Thus, the labor expense will be higher. A good project should be one that minimizes expenses and increases income. The second project does not adhere to this principle. Thus, it can be deemed as not viable as compared to the first project. Moreover, the first project has been tried and tested, unlike the second project. Typically, it is prudent to implement a project that has been tried and tested, and its viability has been ascertained by other organizations to be effective. A new project that has never been tried or tested is not advisable to be integrated into an organization at once; rather it should be used concurrently with the current project until its viability is ascertained. This will be relatively expensive and will take much longer time thus the first project idea is highly recommended as compared to the second project.

References

Graves, S. B., Ringuest, J. L., & Medaglia, A. L. (2003). Models & methods for project selection: Concepts from management science, finance, and information technology. New York: Springer Science.