Project Management, 2e (Pinto) Chapter 3 Project Selection and Portfolio Management 3.

1 True/False 1) Numeric project selection models, by their very nature, employ objective values. Answer FA!"# $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective &) #very decision model contains both objective and subjective %actors. Answer T,-# $i%% 3 "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective 3) A simpli%ied scorin+ model addresses all the wea(ness o% a chec(list model %or project screenin+. Answer T,-# $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ ,e%lective .) The Analytical /ierarchy 'rocess ele+antly addresses scalin+ issues in criteria and ne+ative utility in alternative scores. Answer FA!"# $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 0) The e%%icient %rontier in a pro%ile model is the set o% options that o%%ers a ma1imum return %or a +iven level o% ris( or a minimum ris( %or every level o% return. Answer T,-# $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ Analytic "(ills

1
)opyri+ht 2 &313 'earson #ducation, 4nc.

5) The present value o% money is lower the %urther out in the %uture 4 e1pect to spend it. Answer FA!"# $i%% & "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 7) The reciprocal o% the paybac( period is used to calculate the avera+e rate o% return %or a project. Answer T,-# $i%% & "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 8) 4nternal rate o% return is pre%erable to net present value because 4,, employs a wei+hted avera+e cost o% capital discount rate that re%lects potential reinvestment. Answer FA!"# $i%% 3 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills 9) An options model could be used when %inancial criteria would chan+e si+ni%icantly over time. Answer T,-# $i%% & "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective 13) The most important thin+ to remember when usin+ project selection models is to be consistent and objective. Answer T,-# $i%% 1 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective 11) *ecause projects mana+ed under a project port%olio mana+ement scheme may be independent o% each other, it is not necessary to consider resource use when decidin+ to pursue any sin+le project. Answer FA!"# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective &
)opyri+ht 2 &313 'earson #ducation, 4nc.

and ris(y and sa%e projects.1&) A balanced project port%olio may be interpreted to mean that a sin+le port%olio contains both hi+h and low ris(. the %irm is poised on the cusp o% success.. Answer FA!"# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ...) 'ersonnel costs comprise one o% the hi+hest sources o% project e1pense..-# $i%% 1 "ection 3..e%lective 3.. low +rowth and hi+h +rowth.1 'roject "election "(ill $e%inition AA)"* Ta+ . Answer comparability $i%% & "ection 3...... 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ .e%lective 13) "uccess%ul project mana+ement %irms rely on home runs and narrowly concentrated e%%orts since speciali:ation creates name reco+nition and mar(et share..e%lective &) 'roject selection model come in two +eneral classes ...1 'roject "election "(ill Factual AA)"* Ta+ ..& Fill in the *lan( 1) A project selection model that is broad enou+h to be applied to multiple projects has the virtue o% .. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ........ and .. Answer FA!"# $i%% & "ection 3.. . Answer numeric... 4nc. nonnumeric $i%% & "ection 3..e%lective 3 )opyri+ht 2 &313 'earson #ducation...e%lective 10) 4% strate+y and port%olio are not in sync.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ..e%lective 1. Answer T. Answer FA!"# $i%% 1 "ection 3.

.& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 5) 4n project mana+ement.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ .3 Financial 6odels "(ill )onceptual AA)"* Ta+ .e%lective 8) The .. )opyri+ht 2 &313 'earson #ducation. screenin+ method may arrive at multiple solutions..& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ ... Answer chec(list $i%% & "ection 3... that contains criteria that pertain to a choice o% projects. to the criteria used to evaluate projects... which is one reason it is used less widely than the net present value techni=ue.....) $i%% 3 "ection 3..3 Financial 6odels "(ill Analytical AA)"* Ta+ .. principal.....3) The simplest method o% project screenin+ and selection is developin+ a<n) ...... Answer internal rate o% return <4. Answer e%%icient %rontier $i%% & "ection 3.. Answer time value o% money $i%% 3 "ection 3.. .) A simple scorin+ model assi+ns .....e%lective 0) The .... Answer wei+hts $i%% 1 "ection 3. method o% project screenin+ +enerates overall project scores that can be compared meanin+%ully a+ainst each other. Answer Analytical /ierarchy 'rocess <A/') $i%% & "ection 3.... is the set o% project port%olio options that o%%ers either a ma1imum return %or every +iven level o% ris( or the minimum ris( %or every level o% return.e%lective .............e%lective ..& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 7) Financial models are all predicated on the ... 4nc.... the ..

$) ease o% use..e%lective 13) ...e%lective 11) A %irm that o%%sets ris(y ventures with more secure projects or new development ventures with e1istin+ product line cash cows is desirous o% .. Answer <project port%olio) balance $i%% 3 "ection 3... Answer 'roject port%olio mana+ement $i%% & "ection 3.. Answer options model $i%% 3 "ection 3..9) An or+ani:ation that has some %le1ibility in postponin+ a project and mi+ht be able to ma(e a better decision with in%ormation that would be available at a later date mi+ht ma(e use o% a<n) . 'roject 'ort%olio 6ana+ement "(ill $e%inition AA)"* Ta+ ... 4nc.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ .. Answer <ade=uate) resources $i%% & "ection 3. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ..... includin+ a %irm>s strate+ic +oals and mission is called A) realism. *) capability... )) comparability. %or project screenin+..e%lective 0 )opyri+ht 2 &313 'earson #ducation.. is the systematic process o% selectin+....3 Financial 6odels "(ill )onceptual AA)"* Ta+ ...... . Answer A $i%% & "ection 3.e%lective 1&) A principle cause o% project port%olio underper%ormance is lac( o% . supportin+.3 6ultiple )hoice 1) "ouder>s project screenin+ criterion that indicates an e%%ective model must re%lect or+ani:ation objectives.e%lective 3...........1 'roject "election "(ill $e%inition AA)"* Ta+ .... and mana+in+ a %irm>s collection o% projects.

) 4% a model can be applied success%ully by people in all areas and levels o% an or+ani:ation. $) realism. $) %le1ibility. Answer * $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ . Answer * $i%% & "ection 3.e%lective 5 )opyri+ht 2 &313 'earson #ducation. and projects with di%%erent commercial objectives is A) %le1ibility. projects with di%%erent technolo+ies.1 'roject "election "(ill Factual AA)"* Ta+ . 4nc.1 'roject "election "(ill )onceptual AA)"* Ta+ . )) capability. . *) ease o% use. *) comparability. it is said to possess the trait o% A) capability.e%lective 3) A project screenin+ criterion that allows the company to compare lon+ term versus short term projects. )) %le1ibility.&) A selection model that is broad enou+h to be applied to multiple projects has the bene%it o% A) ease o% use.e%lective . *) ease o% use )) capability $) realistic Answer ) $i%% & "ection 3.

1 'roject "election "(ill $e%inition AA)"* Ta+ . /e +rossly underestimates the time re=uired and misses his deadline by two months. amon+ others. $) %le1ibility. Answer $ $i%% & "ection 3. This estimate was A) objective and accurate. 4nc.1 'roject "election "(ill $e%inition AA)"* Ta+ .e%lective 7 )opyri+ht 2 &313 'earson #ducation.e%lective 7) A writer estimates it will ta(e three months to +enerate spi%%y documents to accompany a seminal wor( in operations mana+ement. Answer $ $i%% & "ection 3. *) cost. is called A) ease o% use. $) subjective and inaccurate. .1 'roject "election "(ill $e%inition AA)"* Ta+ . )) capability.0) An 6*A redesi+n committee spends the better part o% a decade travelin+ the )aribbean to benchmar( +raduate pro+rams at other universities. *) capability )) ease o% use $) cost Answer $ $i%% 1 "ection 3.e%lective 5) "ouder>s model selection criterion that encoura+es ease o% adaptation to chan+es in ta1 laws. )) objective and inaccurate. buildin+ codes. ?hatever screenin+ model is bein+ used su%%ers %rom poor per%ormance on A) realism. *) subjective and accurate.

e%lective 11) Dne %acet o% ris( in project screenin+ is A) the chan+e in manu%acturin+ operations resultin+ %rom the project. *) the %irm>s reputation may su%%er when the product becomes available. $) the chance that the %irm>s +oodwill will su%%er due to the =uality o% the %inished project. )) the potential %or lawsuits or le+al obli+ation.e%lective 9) An internal operatin+ issue in project screenin+ and selection is A) e1pected return on investment.1 'roject "election "(ill )onceptual AA)"* Ta+ .1 'roject "election "(ill $e%inition AA)"* Ta+ .e%lective 8 )opyri+ht 2 &313 'earson #ducation. Answer * $i%% & "ection 3. *) numeric and objective. )) nonBnumeric and subjective. Answer ) $i%% & "ection 3. 4nc. )) patent protection. . $) the strate+ic %it o% the project with the company. $) nonBnumeric and objective. Answer A $i%% & "ection 3. *) chan+e in physical environment.1 'roject "election "(ill $e%inition AA)"* Ta+ .e%lective 13) Cuality ris( re%ers to the chance that A) the project relies on developin+ new or untested technolo+ies.1 'roject "election "(ill Factual AA)"* Ta+ ."A's bac( %rom the list o% 733 +uests. *) the initial cash outlay. )) the wellBbein+ o% the users or developers may decline dramatically. Answer A $i%% 1 "ection 3.8) A weddin+ planner allows @13. *oth estimates are correct within a %raction o% a percent. ?e could describe this %actoid as A) numeric and subjective.333 %or %lowers and three wee(s to receive all . $) the %irm may %ace a lawsuit.

)) the lon+Bterm mar(et dominance. *) %inancial ris(. Answer A $i%% 1 "ection 3. )) $ecision models are either objective or subjective. $) #very decision model has both objective and subjective %actors.1&) Dne project %actor that directly impacts a %irm>s internal operations is the A) e1pected return on investment. $) For many projects.e%lective 10) ?hich statement re+ardin+ project selection and screenin+ criteria is bestE A) The most complete model in the world is still only a partial re%lection o% or+ani:ation reality. the team should identi%y all the relevant issues that play a role in project selection. Answer ) $i%% & "ection 3. .1 'roject "election "(ill )onceptual AA)"* Ta+ . )) need to develop employees. +iven enou+h time and e%%ort.) ?hich statement re+ardin+ project selection is bestE A) Dr+ani:ational reality can be per%ectly captured by most decisionBma(in+ models. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ .e%lective 9 )opyri+ht 2 &313 'earson #ducation.1 'roject "election "(ill )onceptual AA)"* Ta+ . *) *e%ore selectin+ any project. *) the li(elihood that users o% the project are injured. to identi%y all relevant issues that play a role in project selection. $) impact on company>s ima+e.e%lective 1. $) the impact on the company>s ima+e.e%lective 13) A commercial %actor in project selection and screenin+ mi+ht be A) a need to develop employees. )) $ecision models must contain either objective or subjective %actors. more than 83F o% the decision criteria are vital. *) 4t is possible. 4nc. Answer $ $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ .

e%lective 13 )opyri+ht 2 &313 'earson #ducation.1 'roject "election "(ill )onceptual AA)"* Ta+ . )) a division o% wei+hts by scores to arrive at a standardi:ed score %or each criterion.1 'roject "election "(ill )onceptual AA)"* Ta+ . . )) product durability and %uture mar(et potential o% the product line. Answer A $i%% 3 "ection 3. *) "calin+ models ensure a reasonable lin( between the selected and wei+hted criteria and the business objectives that motivated their selection. Answer * $i%% & "ection 3. *) +overnmental or sta(eholder inter%erence. Answer ) $i%% & "ection 3.e%lective 18) The simple scorin+ model has this advanta+e over a chec(list model %or screenin+ projects. $) the ris(iness o% the new venture. A) "calin+ %rom 1 to 0 is e1tremely accurate. $) a summation %or each criterion to achieve an overall criterion score.1 'roject "election "(ill )onceptual AA)"* Ta+ . *) score values assi+ned to each criterion in terms o% its ratin+. $) "calin+ models have been proven to ma(e correct decisions better than 90F o% the time while chec(lists only achieve 83F accuracy.e%lective 17) A simple scorin+ model %or project evaluation re=uires A) importance wei+hts %rom 1 to 13 assi+ned to each criterion. )) "calin+ models allow decision ma(ers to treat one criterion as more important than another.15) A chec(list screenin+ model does not consider A) whether one criterion is more important than another. 4nc.

importance wei+hts. and scores %or each are shown in the table.19) A project mana+er is usin+ a simple scorin+ model to decide which o% %our projects is best. 4nc. The criteria. ?hich project should be chosenE Project Greenlight Criteria 1 & 3 Run a! 1 & 3 " 1 & 3 Ile#omit 1 & 3 A) 'roject Greenli+ht *) 'roject .1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 1 & 3 & & 3 1 & 3 & 3 & 1 & 3 & & 1 Importance Weight 1 & 3 Score 3 1 1 11 )opyri+ht 2 &313 'earson #ducation. +iven the company>s limited resources. .unway )) 'roject H $) 'roject 4levomit Answer $ $i%% & "ection 3.

. Answer $ $i%% & "ection 3. *) 4% project ) is chosen. )) A/' can improve the process o% developin+ project proposals. the company would bene%it only hal% as much as i% they had chosen project *.1 'roject "election "(ill )onceptual AA)"* Ta+ . )) 'roject ) is better than project * %or this company at this point in time. The total score %or project A is 33. %or project * is &3. Answer $ $i%% 1 "ection 3.e%lective 1& )opyri+ht 2 &313 'earson #ducation. $) may be used instead o% A/' i% time is limited. ?hich o% the %ollowin+ statements is bestE A) 4% project A is success%ully completed. Answer * $i%% & "ection 3. *) is analy:in+ the process you intend to improve be%ore underta(in+ any improvement project. Answer A $i%% 1 "ection 3. *) is a method to compare pairs o% hierarchies prior to any %urther analysis. )) re=uires "aaty%ication o% the team members.1 'roject "election "(ill )onceptual AA)"* Ta+ . it will yield three times the bene%its that project ) would have provided. $) consists o% constructin+ a hierarchy o% criteria and subcriteria.&3) A simple scorin+ model is used to decide amon+ three projects that we>ll call A.e%lective &1) The %irst step in the Analytical /ierarchy 'rocess A) re=uires supportin+ re=uirements to be combined into level 44 challen+es. *) A/' can be used to capture choice options that do not yield positive outcomes. $) 'roject A is better than project * %or this company at this point in time.1 'roject "election "(ill )onceptual AA)"* Ta+ .1 'roject "election "(ill )onceptual AA)"* Ta+ .e%lective &3) ?hich statement about the Analytical /ierarchy 'rocess is %alseE A) A/' scores are si+ni%icant. *. 4nc.e%lective &&) The pairwise comparison approach A) is a method to split the wei+hts assi+ned to subcriteria. $) A/' +roups subcriteria that share the wei+ht o% a common hi+herBlevel criterion. and %or project ) is 13. and ). )) is a means o% achievin+ all project objectives within the allocated time %rame.

4nc. cost. intermediateBterm.3F.) The Analytical /ierarchy 'rocess is bein+ employed in a project selection decision. ?hich o% these statements is bestE A) "hortBterm. receives a wei+htin+ value o% . Answer ) $i%% & "ection 3.3F wei+htin+.503. )) The analysis must be incorrect because there are two total scores that e1ceed 3. and %or project ) is . ?hich o% the %ollowin+ statements is bestE A) 'roject A is twice as +ood as project ).3&1. intermediate term<33F). Dne major criteria. and ).1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills &5) The pro%ile model plots a +raph on a A) perceptionBreality pair o% a1es.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills &0) The Analytical /ierarchy 'rocess is used to decide amon+ three projects that we>ll call A. )) e%%iciencyBe%%ectiveness pair o% a1es. . *.03..01.&. %or project * is . $) The analysis must be incorrect because project )>s total score is odd.e%lective 13 )opyri+ht 2 &313 'earson #ducation. and lon+Bterm <&3F). Answer A $i%% 1 "ection 3. *) The analysis must be incorrect because the total scores should sum to 1.1 'roject "election "(ill )onceptual AA)"* Ta+ . *) ris(Breturn pair o% a1es.33. which is split into shortBterm <03F). $) !on+Bterm cost receives an overall wei+htin+ o% 83F. The total score %or project A is . Answer * $i%% 1 "ection 3. *) There must be at least one other major criteria that has . )) 4ntermediateBterm cost receives a wei+htin+ o% 1&F. and lon+Bterm must receive overall wei+htin+s that total 133F. $) "a1onBNorman pair o% a1es.

4nc.333 in year . which o% these anticipated %ourByear %lows would yield the +reatest net present valueE A) @13. Answer $ $i%% & "ection 3.333 in year 1I @11.333 in year 1I @11.333 in year . )) @13.333 in year .333 in year &I @11.333 in year 3I and @13. 4% the interest rate is .1 'roject "election "(ill )onceptual AA)"* Ta+ .333 in year &I @1&.333 in year 1I @13. )) The e%%icient %rontier in the pro%ile model is where return is 133F <or +reater) and ris( is 3F.e%lective &9) *etween projects A and *. . *) a lower avera+e rate o% return than project *.333 in year 3I and @1&. $) a lon+er paybac( period than project *.333 in year . *) The scale used %or the pro%ile model can be any two numerical variables that a company deems important.333 in year 3I and @13. *) @13. )opyri+ht 2 &313 'earson #ducation. )) a ma1imum return %or a minimum ris(.333 in year 1I @1&.333 in year 3I and @13. Answer ) $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ . $) a ma1imum return %or a ma1imum ris(. $) @11.e%lective &8) ?hich statement about the use o% the pro%ile model is bestE A) The pro%ile model re=uires care%ul calculation o% the percenta+e ris( %or each possible project.&7) The e%%icient %rontier in project mana+ement is the set o% port%olio options that o%%er A) a minimum return %or a minimum ris(.1 'roject "election "(ill )onceptual AA)"* Ta+ . Answer A $i%% 1 "ection 3.333 in year &I @1&. *) a minimum return %or a ma1imum ris(. $) For a +iven level o% ris(.F.333 in year &I @13. a positive move on the return a1es would indicate a superior project. Answer * $i%% 3 "ection 3. project A will be considered a superior %inancial underta(in+ i% it has A) a shorter paybac( period than project *. )) a lower net present value than project *.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 1.e%lective 33) Net present value is bein+ used to brea( the tie amon+ %our otherwise e=ual projects.

4nc. 4..333 in year &I @13. $) 4. )) 4% cash %lows are not normal. is less than the company>s re=uired rate o% return.. .333 in year 3I and @0. 4% the company is employin+ the net present value criterion...31) A company %acin+ an interest rate o% 8F must choose amon+ projects o%%erin+ the %ollowin+ %ourByear cash %lows. *) 'rojects havin+ lower 4. and N'A calculations typically ma(e the same investment recommendations only when the projects are independent o% each other.333 in year 3I and @10.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 10 )opyri+ht 2 &313 'earson #ducation. $) 4% net out%lows %ollow a period o% net in%lows.. )) @10. *) 4.333 in year 3I and @33. $) @0. which project should they chooseE A) @&0. Answer $ $i%% 3 "ection 3.333 in year &I @10..333 in year &I @&3. 4. may +ive con%lictin+ results.333 in year 1I @10. may arrive at multiple solutions.333 in year .. Answer ) $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 33) ?hich o% these statements about valuation models is $%& correctE A) N'A employs a wei+hted avera+e cost o% capital discount rate that re%lects potential reinvestment.. is a more robust determinant o% project viability than N'A.333 in year 3I and @&0.333 in year 1I @0..333 in year 1I @0. Answer $ $i%% 3 "ection 3. *) @0.333 in year &I @&0.333 in year . and N'A calculations always ma(e the same investment recommendations. )) 4.333 in year . are +enerally superior to those havin+ hi+her 4.333 in year .1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 3&) ?hich o% these statements about internal rate o% return analysis is bestE A) 4% the 4.333 in year 1I @10. the project is worth %undin+.

333 durin+ the %i%th year Answer $ $i%% 3 "ection 3.333 initial outlay with a @0.3. @&3.333 initial outlay with @0. )) when N'A calculations are %avorable but 4. .) A project mana+er is usin+ the internal rate o% return method to ma(e the %inal decision on which project to underta(e.333 durin+ the third and %ourth years..333 initial outlay with @13.333 per year throu+h the %i%th year $) @03. 4nc.333 cash in%lows durin+ the %irst two years.333 cash in%lows durin+ the %ollowin+ %ive years *) @1&. @10. and @&3.1 'roject "election "(ill )onceptual AA)"* Ta+ ..333 cash in%lows durin+ the %ollowin+ %ive years )) @&0. and @33.333 durin+ the third and %ourth years. Answer * $i%% & "ection 3. ?hich o% these %our projects have the hi+hest internal rate o% returnE A) @133. increasin+ by @0.e%lective 15 )opyri+ht 2 &313 'earson #ducation.333 durin+ the %i%th year *) @133. @10. and @&0.033 initial outlay with @13.333 cash in%lows durin+ the %ollowin+ %ive years $) @1&. *) when a company may not recover the money it invests in a project.333 cash in%low durin+ the %irst year. calculations are %avorable but N'A calculations are un%avorable. ?hich o% these %our projects have the hi+hest internal rate o% returnE A) @&0.333 initial outlay with @0.033 initial outlay with @0. calculations are un%avorable.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 35) Dptions models are used to assist in project selection decisions A) when 4.333 cash in%lows durin+ years three throu+h %ive )) @70.333 cash in%low durin+ the %irst year.333 initial outlay with a @0.333 cash in%lows durin+ the %ollowin+ %ive years Answer * $i%% 3 "ection 3.333 cash in%low durin+ the second year. $) when a company is +uaranteed to recover the money it invests in a project.333 cash in%lows durin+ the %irst two years.333 initial outlay with @13.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 30) A project mana+er is usin+ the internal rate o% return method to ma(e the %inal decision on which project to underta(e.

'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . )) %ocus on shortBterm strate+ic +oals. $) project port%olio mana+ement. )) pro%ile mana+ement. it should always A) be able to predict how much revenue will be returned to the %irm each year. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . supportin+.e%lective . *) mana+e projects as independent entities.3) A project with the chance %or a bi+ payout may be %unded i% an important criterion is A) cost. Answer ) $i%% & "ection 3.e+ardless o% which selection method a %irm uses.e%lective 39) The concept o% project port%olio mana+ement holds that %irms should A) re+ard all projects as uni%ied assets.1 'roject "election "(ill )onceptual AA)"* Ta+ . $) %ocus on lon+Bterm constraints. and mana+in+ a %irm>s collection o% projects is called A) heavywei+ht project mana+ement.. )) be objective in their selection method. *) matri1 project or+ani:ation. 4nc. Answer $ $i%% & "ection 3. $) use a wei+hted scorin+ techni=ue. $) ris(.. *) opportunity. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . . Answer * $i%% & "ection 3..37) . )) top mana+ement pressure.e%lective 17 )opyri+ht 2 &313 'earson #ducation. Answer A $i%% & "ection 3.e%lective 38) The systematic process o% selectin+. *) (now which project will ultimately succeed and which ones will %ail.

1) A project is e1ceptionally ris(y mi+ht still be underta(en by a %irm i% they have several other projects underway that are considered more o% a sure thin+.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . *) the shi%tin+ o% project resources %rom one to another. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . Answer * $i%% & "ection 3.e%lective 18 )opyri+ht 2 &313 'earson #ducation.) A proactive project port%olio A) is as simple as movin+ %rom one project opportunity to another project opportunity.eali+nment describes A) the chan+e in a project port%olio with an addition o% a new project. $) the annual recastin+ o% all project mana+ers... Answer A $i%% & "ection 3.e%lective . *) ris(. *) is an inte+rated %amily o% projects with a common strate+ic +oal.&) #valuatin+ projects in terms o% their strate+ic %it with e1istin+ project lines or their ability to au+ment the current product %amily is (nown as A) balance. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ .e%lective . )) is a collection o% projects under the umbrella o% sin+le project mana+er carryin+ the title o% port%olio mana+er.. . )) desire %or port%olio balance.. Answer $ $i%% & "ection 3. *) an open criterion )) wei+hted criterion.e%lective . $) top mana+ement pressure. 4nc. $) is developed with respect to shortBterm operational concerns. Answer ) $i%% & "ection 3. This approach to project selection is best described by the criterion called A) strate+ic J%itJ. )) the chan+e in strate+y %or a %irm. $) complementarity.3) .. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ .

$) represents narrowly concentrated e%%orts.0) ?hich o% these is $%& a %actor in success%ul project port%olio mana+ementE A) %le1ible structure and %reedom o% communication *) low cost environmental settin+ )) emphasis on =uality $) time paced transition Answer ) $i%% & "ection 3.8) "uccess%ul %irms use project port%olio plannin+ routinely to A) ma(e =uantum jumps %rom one product to another. Answer * $i%% & "ection 3..e%lective . $) move at +lacial pace always within the same product line.7) A %irm is best served i% its project port%olio A) has a number o% lowBcost e1perimental prototypes. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . )) aims to ta(e the mar(etplace by storm re+ardless o% %uture trends. Answer $ $i%% & "ection 3. $) improvisation by project teams. *) devotes si+ni%icant resources to hit product Jhome runsJ. )) move as =uic(ly as possible into new territory.e%lective .... *) ri+id development processes. )) narrow communication channels. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . .e%lective 19 )opyri+ht 2 &313 'earson #ducation.5) 6ultiple project environments thrive on A) multiBlayered bureaucracy. *) develop products with lon+ lead times and plan ahead. 4nc. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . Answer A $i%% 1 "ection 3.e%lective ..

. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . )) outBo%Bsync projects and port%olios.. *) ris( and return. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . Answer A $i%% & "ection 3..e%lective 01) 'roject port%olio mana+ement is typically $%& used to balance A) human and technical resources. it will initially %ace the problem o% A) scarce resources. *) +overnment intervention.e%lective 03) A principle cause o% port%olio underper%ormance is A) conservative technical communities.. Answer ) $i%% 1 "ection 3. Answer $ $i%% & "ection 3. )) outBo%Bsync projects. $) unpromisin+ projects. $) scarce resources. *) a conservative technical community. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . $) various %amilies o% projects.. 4nc. )) e%%iciently run projects and nonper%ormers.e%lective &3 )opyri+ht 2 &313 'earson #ducation.9) 4% an or+ani:ation that currently is mana+in+ a vast and wellBbalanced port%olio o% projects decides on a new strate+ic direction.

1 'roject "election "(ill Factual AA)"* Ta+ .e%lective &1 )opyri+ht 2 &313 'earson #ducation.e%lective &) 'rovide an e1ample o% a numeric and nonBnumeric project selection model and indicate what advanta+e each mi+ht hold over the other. "a%ety ris( may arise as the wellBbein+ o% users or developers o% the project is compromised. #ach techni=ue has its own merits and may be employed success%ully.1 'roject "election "(ill $e%inition AA)"* Ta+ . Finally. comparability re%ers to the ability o% the criterion to be applied to multiple projects without bias. capability. and cost. Numeric models see( to use numbers %or the decision process involved in selectin+ projects. #ssay 1) $escribe or de%ine any %our important attributes %or screenin+ models used to evaluate projects. Fle1ibility is the =uality o% ease o% modi%ication i% trial applications re=uire chan+es. Answer "ouder identi%ies %ive important issues that mana+ers should consider when evaluatin+ screenin+ models realism. Technical ris(s occur due to the development o% new or untested technolo+ies. e1ternal values that are JcorrectJ. both in speci%ic project roles and in those related to %unctional positions. Financial ris(s arise %rom the %inancial e1posure caused by investin+ in the project.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 3) $escribe any %our types o% ris( that projects may hold. 4% a numeric model uses objective.3. includin+ a %irm>s strate+ic +oals and mission. relyin+ instead on other data. Finally. Any ris(s to the %irm>s +oodwill or reputation due to the =uality o% the completed project are termed =uality ris(s. NonBnumeric models do not employ numbers at decision inputs. realism is the ability o% the model to re%lect or+ani:ational objectives. )ost can be de%ined as the e1pense in either time or money <or both) that is re=uired to use the model. and a choice between the two should be tempered by the ada+e G4GD. the potential %or lawsuits or le+al obli+ation is le+al e1posure. 4nc. Answer 'roject selection models come in two +eneral classes numeric and nonBnumeric. $i%% & "ection 3. and the te1t o%%ers up comparability. #ase o% use calls %or the model to be simple enou+h to be used by people in all areas o% the or+ani:ation. )apability is the ability o% the model to respond to chan+es in the conditions under which projects are carried out. $i%% & "ection 3. $i%% & "ection 3.is( %actors re%lect elements o% unpredictability %or the %irm. These values can either be derived objectively or subjectively.. . ease o% use. %le1ibility. Answer . A nonBnumeric model mi+ht appeal to decision ma(ers that have less o% a =uantitative bent or those that operate in a less =uanti%iable decision arena. then a decisionBma(er can have a hi+h de+ree o% con%idence that the values under study will lead to a reasonable decision. Ta(in+ these in reverse order.

#ach potential project is scored a+ainst the list o% criteria and is rated as per%ormin+ hi+h. or o%%erin+ house call classes where the pro%essor would visit your home to provide instruction. A simple scorin+ model mi+ht be as %ollows with /ouse )alls narrowly ed+in+ out 6idni+ht )lasses. medium. $i%% 1 "ection 3.e%lective && )opyri+ht 2 &313 'earson #ducation. First. $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ . 4nc.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ . . or low with the project scorin+ hi+hest overall bein+ selected as the project to underta(e. The major limitation o% simple scorin+ models is that the scalin+ is not very accurate and is o%ten treated as i% ratios and di%%erence in scorin+ levels have real meanin+. A simpli%ied scorin+ model ran(s criteria accordin+ to their relative importance. 1 5 5 3 3 Total "core 11 /ouse )alls 1& $i%% & "ection 3. Another drawbac( o% these models is that they depend on the relevance o% the selected criteria and the accuracy o% wei+ht +iven them.& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 5) ?hat are the advanta+es and limitations o% simple scorin+ modelsE Answer The simple scorin+ model has some use%ul advanta+es as a project selection device. -se a simple scorin+ model with at least three criteria to evaluate these two potential projects and indicate which project should be chosen.e%lective 0) Kour university is considerin+ two projects to increase enrollment o%%erin+ traditional classes %rom midni+ht to 5 a. it is easy to comprehend and use.. Answer Answers may vary widely. #ach project is evaluated %or per%ormance on each criterion and an overall score %or each project is computed by summin+ the products o% each score times its wei+ht. 'roject 6idni+ht )lasses )riteria L ?ei+ht "core Time & & )ost 1 1 6ar(et 'otential 3& Time & 3 )ost 1 3 6ar(et 'otential 31 ?ei+hted "core . it is easy to tie to critical strate+ic +oals %or the company and second.) /ow does a chec(list project screenin+ model wor(E Answer The simplest method o% project screenin+ and selection is developin+ a chec(list o% criteria that pertain to a choice o% projects and then applyin+ them to the projects.m.

7) /ow does the Analytical /ierarchy 'rocess di%%er %rom a simple scorin+ modelE 4s it worth the e1tra e%%ortE Answer The Analytical /ierarchy 'rocess <A/') is a %ourBstep process that consists o% structurin+ the hierarchy o% criteria. . The pro%ile model ma(es use o% a concept (nown as the e%%icient %rontierMthe set o% project port%olio options that o%%ers either a ma1imum return %or every +iven level o% ris( or the minimum ris( %or every level o% return.& Approaches to 'roject "creenin+ and "election "(ill $e%inition AA)"* Ta+ . 'rimary di%%erences between the two approaches are that A/' ta(es a more ri+orous view o% the assi+nment o% criteria wei+hts and values to the evaluation dimensions. and evaluatin+ project proposals. A pro%ile model appears below. $i%% 3 "ection 3. unli(e the values computed in a simple scorin+ model. $i%%erences amon+ evaluation scale items are not necessarily e=ual and can be adjusted as mana+ers and decisionBma(ers see %it.e%lective 8) $escribe the use o% a pro%ile model and s(etch an e1ample. so determination o% the value derived %rom use o% A/' versus a simple scorin+ model can best be made on a caseBbyBcase basis. 4nc. Answer 'ro%ile models allow mana+ers to plot ris(/return options %or various alternatives and then select the project that ma1imi:es return while stayin+ within a certain ran+e o% minimum acceptable ris(. A/' methodolo+y can dramatically improve the project selection process over use o% the simple scorin+ model. A/' is not without limitations and does re=uire more e%%ort to con%i+ure and use.e%lective &3 )opyri+ht 2 &313 'earson #ducation. assi+nin+ numerical values to evaluation dimensions. allocatin+ wei+hts to criteria. $i%% 3 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ . clearly labelin+ every component and the best alternative in your e1ample. The authors caution a+ainst usin+ a project screenin+ tool that has a poor cost/bene%it ratio. The resultin+ product sums have meanin+.

is +reater than or e=ual to the company>s re=uired rate o% return. 4. analysis is its ability to compare alternative projects %rom the perspective o% e1pected return on investment. e.. the project is worth %undin+. 4... The advanta+e o% usin+ 4. and &) the inability to invest the money. how lon+ will it ta(e the project to pay bac( its initial bud+et and be+in to +enerate positive cash %low %or the company.. The discounted cash %low method is used to estimate cash outlays and in%lows resultin+ %rom investment in a project. 4. i% net out%lows %ollow a period o% net cash in%lows.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills &. The time value o% money principle may be applied to project selection as one criterion to ascertain which project will +enerate the +reatest return on a company>s investment. $i%% 1 "ection 3. is not the rate o% return %or a project. 4nc. 'rojects that have a relatively certain return o% +reater sums o% money would be pre%erred over projects that stand a chance o% returnin+ less money in today>s dollars. and these positive and ne+ative %lows are compared usin+ the ratio "horter paybac(s are pre%erable to lon+er paybac(s. su%%ers %rom di%%iculty in con%lictin+ solutions i% cash %lows are not normal.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills 13) /ow can a paybac( period approach be used to evaluate potential projectsE Answer The project paybac( period approach estimates the amount o% time that will be necessary to recoup the investment in a projectI that is.. is the discount rate that e=uates the present values o% a project>s revenue and e1pense streams.9) ?hat is the time value o% money principle and how does it apply to project selectionE Answer The time value o% money principal su++ests that money earned today is worth more than money e1pected in the %uture. )opyri+ht 2 &313 'earson #ducation.) is a method o% evaluatin+ the e1pected outlays and income associated with a new project investment opportunity.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 11) ?hat is an internal rate o% return and what advanta+es and disadvanta+es are accrued by usin+ it to evaluate projectsE Answer 4nternal rate o% return <4. $i%% & "ection 3. $i%% & "ection 3. Future money is e1pected to be worth less %or two reasons 1) the impact o% in%lation. .+. 4% 4...

or any other. but suppose %irm A can wait until more mar(et research is per%ormed or until a supplier solves =uality and lo+istics issues. =uantitative. 'roject 'ort%olio 6ana+ement "(ill $e%inition AA)"* Ta+ . $i%% & "ection 3. a wide variety o% selection methods may be appropriate %or speci%ic companies and project circumstances. $i%% & "ection 3.3 Financial 6odels "(ill Factual AA)"* Ta+ . Dr+ani:ations can %actor the bene%it o% postponin+ decisions <and projects) until %inancial models indicate projects are worth pursuin+.. objectivity and consistency in selection method is paramount. prioriti:ation.1&) ?hat are options models and when should they be used to evaluate projectsE 'rovide an e1ample. the project scores better on the N'A calculations. review.e%lective &0 )opyri+ht 2 &313 'earson #ducation.) ?hat is project port%olio mana+ement and what are its objectives and initiativesE Answer 'roject port%olio mana+ement is the systematic process o% selectin+. whether it is %inancial. 4nc. As with most thin+s. "econd. *ecause company A can wait a year. 'rojects are mana+ed concurrently under a sin+le umbrella and may be either related or independent o% each other. .3 Financial 6odels "(ill $e%inition AA)"* Ta+ . Achievin+ both objectivity and consistency allows a %irm to avoid the pit%all o% twea(in+ results and startin+ projects that are personal %avorites but don>t merit pursuit.e%lective 13) ?hat two simple rules should be %ollowed when choosin+ a project selection approachE Answer First and %oremost. The cash %lows may be superior to those that would come %rom immediate investment i% company A had to su%%er throu+h those issues with their supplier. clearin+ the company>s predetermined %inancial hurdle and will just have to wait to be+in rather than bein+ counted as too +reat a %inancial ris(. #1amples may vary. $i%% & "ection 3. and reprioriti:ation o% a %irm>s project. A broad al+orithm that embraces both %inancial and nonB%inancial considerations is o%ten best.e%lective 1. 'ort%olio mana+ement entails decisionBma(in+. supportin+ and mana+in+ a %irm>s collection o% projects. overBreliance on one end o% a scale. is not the best approach. reali+nment. Answer Dptions models open %inancial analysis to consider a +reater ran+e o% alternatives to immediate investment.

buildin+ projects.e%lective 15) )hoose any e1ample %rom recent news media and e1plain why their project %ailed. /avin+ a stable o% projects that are timeBphased to launch when others are nearin+ the end o% their use%ul cycle and still others are bearin+ ma1imum %ruit will assure a %irm o% continued success. others may su++est that in both project port%olio mana+ement and comedy.. timin+ is everythin+.10) ?hat are three (eys to success %or project port%olio mana+ementE ?hich is most importantE Answer The author indicates that the (eys to success%ul project port%olio mana+ement are %le1ible structure and %reedom o% communicationI lowBcost environmental scannin+I and timeB paced transition. $i%% 3 "ection 3.e%lective 17) . Dthers may tout continuous environmental scannin+ as a vehicle %or =uic(ly adaptin+ a %irm>s project port%olio and strate+y to the chan+in+ mar(et conditions. Finally. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ . D% these. cash. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . the te1t su++ests that scarce resources may be the most pernicious problem.ecent research seems to su++est that the %ollowin+ are amon+ the most common problems in e%%ective port%olio mana+ement conservative technical committees that are beholden to %avorite projects.. 4nc.. Answer #1amples will vary and may include product launches. public pro+rams.an( the problems in implementin+ port%olio mana+ement %rom lar+est to smallest and justi%y your ran(in+s. and raw materials. $i%% & "ection 3. . althou+h answers will vary in students> ran(in+s. or any number o% other projects.e%lective &5 )opyri+ht 2 &313 'earson #ducation. $i%% 1 "ection 3. Answer . "ome may ar+ue that un%ettered e1perimentation is most important in achievin+ new project or product brea(throu+hs. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ . methods or technolo+ies that no lon+er %it the mar(et or company>s strate+ic thrustI outBo%Bsync projects and port%olios that may contain worthwhile projects but these projects won>t ta(e the company in the direction it is currently tar+etedI unpromisin+ projects that won>t improve a company>s operations or revenuesI and scarce resources such as human labor. Answers may vary on the importance ran(in+.