Question

This module covers different approaches to project selection (such as payback analysis or using a weighted scoring model). Analyze at least five different ways of project selection. Present the advantages and disadvantages of each method. Explain how you used a selection approach to choose your term project.

Answer 1

The five different project selection methods and their merits and demerits are as below:

1. Cost benefit ratio- It is measuring the cost involved in a project against the value of the return of the project after the project has been implemented.

-Advantages – It is the simplest and easily understandable.

-Disadvantages- the cost and the benefits need to be quantified or assumed however this assumption might not be a perfect one which might lead to incorrect results.

2.Economic model- Also known as the Economic Value Added (EVA) model, the cost invested is calculated against the total revenue generated to identify the profits.

-Advantages- this model provides clear quantifiable benefits once the project has been implemented which can be used as a standards for other projects. It also includes equity capital which is normally excluded in normal accounting.

-Disadvantages- the practicality of calculation is its main disadvantage.

3. Scoring model- In this model, the projects are compared with one another. The focus of the comparison is mainly on the qualities of the project rather than just the financials. The qualities that are pertinent for the team members, company and me would be considered. For example, the risk management and the difficulty of the project would be my preference rather than just the profit.

-Advantages- Non-monetary values are considered rather than just the financials. This adds value to the model. In other word, multiple criteria are used.

-Disadvantages- The model assumes that all the criteria are of the same value and thus they are weighted the same values.

4.Payback period- This model estimate the time it takes for a company to recover the expenses it has invested in the project. For example, if the project worth $250,000 would bring in $25000 a year, then the payback period would be 10 years.

-Advantages- the greatest advantage is its simplicity.

-Disadvantages- The time value for money is not considered in this model which is its greatest disadvantage.

5.Dynamic programming- This method simplifies complex method into different numbers of simpler problems. The breaking down of a complex problem into a interrelated sub problems is the dynamic programming method.

-Advantages- Each sub problem is analyzed in detail. It provides in-depth knowledge in the different aspects of the complex problem.

-Disadvantages- The combination of the different sub problems would lead to n number of smaller sub problems. The Project Manager should be careful in identifying and relating the sub problems.

Personally speaking, I used the scoring model to select my term project. With the help of the scoring model, I was able to compare the different qualities of the project such as risk, support from staff, cost involved etc. This comparison of the multiple criteria which were of prime importance to my team and me was considered for project selection.