Question

1. PROJECT SELECTION

Consider the following information in choosing among the four project alternatives below. Each has been evaluated according to six criteria:

1. Supports key business objectives.
2. Has a strong internal sponsor.
3. Has strong customer demand.
4. Use of existing technology.
5. Has a higher NPV (A negative NPV gets zero).
6. Has low risk in meeting scope, schedule, and cost goals.

All six criteria have been assessed on a 100-point scale. Possible scores are 0, 20, 40, 60, 80, and 100. The table below illustrates how evaluation is made for each criterion.

	0	20	40	60	80	100
Business objectives	Minimally aligned.	Supports some objectives.	Supports almost half of the objectives.	Supports more than half of the objectives.	Supports most of the objectives.	Aligns totally.
Internal sponsor	Inadequate support.	Low support.	Fair support.	Moderate support.	High support.	Very high support.
Customer demand	Inadequate demand.	Low demand.	Fair demand.	Moderate demand.	High demand.	Very high demand.
Technology	Brand-new technology.	Used for a while, downtime is high.	Used for a while, needs frequent maintenance.	Used for a while, needs less maintenance.	Works most of the time with normal downtime.	Employees are highly skilled in using the tech.
NPV	Negative.	0<NPV£30K	30K<NPV£60K	60K<NPV£90K	90K<NPV£120K	120K<NPV80
Triple constraint risk	Very high.	High	Moderate	Fair	Low	Very low

	Business objectives	Internal sponsor	Customer demand	Technology	NPV	Triple constraint
Project Alpha	Supports some objectives.	High support.	Moderate demand.	Employees are highly skilled in using the tech.		Moderate
Project Beta	Supports more than half of the objectives.	High support.	High demand.	Used for a while, needs frequent maintenance.		Moderate
Project Gamma	Supports most of the objectives.	Very high support.	High demand.	Brand-new technology.		Very low
Project Delta	Aligns totally.	Fair support.	Moderate demand.	Used for a while, needs less maintenance.		Low

All the projects have cash outflows to invest in project activities. When projects generate their outcomes (products/services), they start to have cash inflows each year. All project outcomes have a lifetime of four years. The hurdle rate is 10%. The inflation rate is 4%. You should calculate NPVs for all projects. Then, you should fill in the scores after you calculate NPVs for each project. Cash flows are indicated for each project during four years in the table below:

Time	Alpha	Beta	Gamma	Delta
0	-300	-200	-250	-400
1	+100	+100	+50	+200
2	+100	+200	+50	+200
3	+100	+50	+100	+100
4	+150	+50	+50	+150

The weights of each criterion are as below:

Criteria	Weights
Business objectives	25%
Internal sponsor	10%
Customer demand	15%
Technology	10%
NPV	15%
Triple constraint risk	25%

QUESTIONS:

1. Calculate NPV for each project.
   • Show how you made all calculations (e.g., discount factor for each year, and discounted cash flows for each year).
2. Which project do you select based on the weighted scoring model?
   • If you use Excel to compute the weighted scores, copy and paste it on this document in your answer. You can have a screenshot with high resolution, too.
3. CEO and CFO of the company decided to change the weights. The new weights are as follows. Have you changed your decisions based on new weighted total scores? If so, explain why you changed it.

Criteria	Weights
Business objectives	25%
Internal sponsor	20%
Customer demand	20%
Technology	10%
NPV	5%
Triple constraint risk	20%

4. As a CTO, you think that Project Alpha is crucial in terms of improving the company’s IT infrastructure. How can you play with the weights to change the total score in favor of this project? Explain your reasoning thoroughly. Do you think that you can persuade the CEO, CFO, and other senior managers?

Answer 1