Question

What are some methods or tools that can be used to select between multiple projects that are competing for the same resources?

Answer 1

When a company is handling a number of projects at one time, it will have to select the better and profitable ones to prioritise over the others due to resource constraints. To choose the projects can be a difficult decision as there has to be a calculative method which can justify the selection. The selection methods to select between multiple projects can be benefit measurement and constrained optimization methods. Under these two categories, various methods can be selected to choose from to select a project for executing. The methods are:

Benefit/cost ratio method- the present cost of the project is compared to the present return from the project. The project with the higher benefit-cost ratio is selected

- economic value model- the EVA or economic value added of all projects are compared and the one with highest EVA is selected

- scoring model- certain criteria of project comparison is listed and all projects are given scores based on those criteria. The project with the highest score in total is selected

- payback period model- the period in which the project will pay back the cost invested on it is calculated and the one with the shortest payback period is selected.

- Net present value model- the current value of cash inflow is compared to the current value of cash outflow and the net present value or NPV is determined. The project with the highest NPV is selected.

- opportunity model- the opportunity cost is the cost of giving up a project. Opportunity cost of each project is calculated and the project with the lowest opportunity cost is selected.

- Non monetary methods- other than these quantitative methods some criteria that can be used to select a project are the non monetary ones like long term relationship with the clients, overall organizational goal of the company, political factors etc.