Question

Every company has limited or not enough of what is needed, such as not having enough staff, money , time, etc., available for projects, and the constant need to develop processes, increase capacity and create new products, and countless of other needs. It is therefore necessary to use effective methods to select the most crucial and beneficial projects to run the business. Find two approaches that you believe would provide an effective way to select the most important and most valuable projects for the company..

Identify two methods of project selection that you have found and explain how the goals and strategic plans of the company are part of the selection process for the two selected methods that you have chosen. Explain how each approach selected gains from quantitative measurements as part of the selection process. What are the advantages or benefits of using the "weighted score card system" as part of the project selection process?

Answer 1

- Two project selection methods to be chosen and how the goals and strategic plans of the company are part of the selection process for these chosen methods:

1. Benefit Measurement Method: It is a comparative method or approach. In this the benefits which can be arrived from the project will be studied. Some of the methods under this category include:

i. NPV or Net Present Value: This is the difference between the sum of the present value of revenue and the present value of the investment incurred by the company for the particular project. The NPV must be positive of greater than zero for a project to be acceptable. And in the comparison the project with the highest NPV would be chosen.

ii. PBP or Payback Period: This refers to the total number of years or the period that would be required to recover the fund invested in the project. And once this payback is covered then the company would start making profits rather than just revenues. In comparison, the projects with the lowest PBP would be chosen.

2. Qualitative Methods: This refers to the non-financial considerations for selecting a project, which may be political reasons, considerations for the safety and security, personal biases and investor and customer requests.

          All these methods would be chosen and applied in the selection of project by considering the goals and strategic plans of the company. As the major goal of the company would be to attain maximum return on the investments as its goal and also to win more projects which would serve the company with more profit and funds to cover the debt as well as take up new projects.

When NPV is applied the company would get and insight regarding the projects which are likely to produce a negative NPV in future and thereby eliminating the same from the process. And also the PBP would help company to estimate from which year on they would be actually earning the required and expected profits which are vital for its growth, expansion and existence.

- And how they gain from quantitative measurements as part of selection process:

The major gain that the companies would derive from the application of quantitative measurements would be that they can avoid the loss which is likely to arise from investing in the wrong project. Every project would not be as yielding and benefitting from the return on investment basis as you see from the peripherals. It is only when you apply the specific quantitative measurement methods that we can grab the understanding regarding the possible returns that can be earned and that too in the lowest period possible so as to earn the maximum profit from the project.

The company through this can save the risk and the loss of fund. At the same time they can also maximize the return on the investments of the shareholders.

- Advantage of using a ‘weighted score card system’ as part of project selection method:

Weighted score card system or the balance score card system has the following benefits:

1. It would provide a visual picture of the strategy which would make the strategy execution easier.

2. It provides a good platform for discussion as it provides base for discussion of the challenges that they are facing and also analysis the process through which they are producing a product or completing a project. This would include the tracing of the gap if any, delays, waste, shortages etc.

3. This provides us with the perspectives of the customers as we can gauge their satisfaction with the quality, price and also take their feedback about the same.

4. Balance score card also provides and insight into the financial data of the project like the sales and the return earned as this is a vital element for the success of the entity.