project selection.

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Project Selection falls into 3 possible classes:
Accept/Reject decisions - e.g. should we pursue X project or should we hire
another full-ti!e engineer
"pti!ising a !ix of projects to !axi!ise business returns o#er a gi#en period
with a capped budget
selecting the !ost profitable project fro! nu!erous !utuall$ exclusi#e projects.
%his usuall$ in#ol#es choosing a particular technical solution where nu!erous
technical solutions exist to fulfil a particular need& e.g. selecting the best
design la$out for a hospital& or selecting an opti!al !achine for a production
line in a factor$.
Steps for carr$ing out project selection:
'. (ist out all project or purchase alternati#es
). *efine a project planning window in which $ou are e#aluating projects
identified in '.
3. +sti!ate the cashflows for projects identified in '. o#er ti!eperiod defined
in ).
,. *efine a rate of return for discounting. -one$ now is worth !ore than !one$ in
the future.

./ 0 P/ x 1' 2 RR34t
therefore P/ 0 .//1' 2 RR34t
5. *efine criteria for accepting or rejecting a project and for selecting the
best project a!ongst a group of possible projects. -ost widel$ used 1and
si!plest3 is 6P/. Projects with a positi#e 6P/ are acceptable. 7here there are
nu!erous !utuall$ exclusi#e options the project with the highest 6P/ 1all other
factors being constant - e.g. input costs& and ti!e period3
8. 9sing probabilistic and stochastic !ethods anal$se ris:.
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