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Chapter 2: Project, Program, and Portfolio Selection

TRUE/FALSE

1. Organizations—both large and small—cannot undertake most of the potential projects identified
because of resource limitations and other constraints.

ANS: T PTS: 1 REF: 38

2. When using the hierarchical four-stage planning process for selecting projects, you must start at the
bottom of the pyramid.

ANS: F PTS: 1 REF: 41

3. Organizations need to narrow down the list of potential projects to those projects that will be most
beneficial.

ANS: T PTS: 1 REF: 42

4. In practice, organizations usually use a single approach to select projects.

ANS: F PTS: 1 REF: 43

5. An organization should consider only projects with a negative NPV if financial value is a key criterion
for project selection.

ANS: F PTS: 1 REF: 44

6. Projects with higher NPVs are preferred to projects with lower NPVs if all other factors are equal.

ANS: T PTS: 1 REF: 44

7. Money earned today is worth more than money earned in the future, primarily due to inflation.

ANS: T PTS: 1 REF: 45

8. With respect to NPV, all organizations start discounting in Year 0 (immediately).

ANS: F PTS: 1 REF: 46

9. From the viewpoint of NPV only, if Project 2 has a higher NPV than Project 1, Project 1 should be
chosen.

ANS: F PTS: 1 REF: 47

10. The required rate of return is the minimum acceptable rate of return on an investment.

ANS: T PTS: 1 REF: 48

11. Payback occurs in the year when the cumulative benefits minus costs reach zero.

ANS: T PTS: 1 REF: 49

Services. Weaknesses. The main goal of programs is to obtain benefits and control not available from managing projects separately. ANS: F PTS: 1 REF: 50 13. Weaknesses. so are project portfolios. If you assign weights to criteria based on percentage. Objectives and Threats c. A weighted scoring model is a tool that provides a systematic process for selecting projects based on many criteria. a balanced scorecard rejects most traditional financial measures.or medium-priority projects that can be finished in less time than high-priority projects should always be completed first. the sum of all the criteria’s weights must total 100 percent. Low. ANS: T PTS: 1 REF: 50 15. ANS: T PTS: 1 REF: 59 20. Some core projects can be high risk. David Norton. ANS: T PTS: 1 REF: 60 MULTIPLE CHOICE 1. Strengths. Opportunities and Threats b. Organizations should only pursue projects that have the best financial value. Most crucial projects. such as drug development or major transportation projects. a. and require good timing. The SWOT analysis looks at ____. Strengths. Weaknesses. ANS: F PTS: 1 REF: 54 17. Robert Kaplan and Dr. 12. have high value. ANS: T PTS: 1 REF: 56 18. ANS: F PTS: 1 REF: 56 19. Opportunities and Threads d. Weaknesses. ANS: F PTS: 1 REF: 52 16. According to Dr. Strengths. Just as projects are unique. ANS: T PTS: 1 REF: 50 14. Opportunities and Threats ANS: D PTS: 1 REF: 39 . will achieve payback in less than a year.

return on investment. value c. business area analysis b. ____ is the last step. a. a. strategic planning ANS: B PTS: 1 REF: 41 3. a. Three primary methods for determining the projected financial value of projects include net present value analysis. a. opportunity ANS: D PTS: 1 REF: 44 9. alternative b. payback d. funding b. negative d. a. You calculate cash ____ by subtracting costs from benefits. An organization should consider only projects with a ____ NPV if financial value is a key criterion for project selection. a. needs b. a. flow c. A positive NPV means the return from a project exceeds the ____ cost of capital—the return available by investing the capital elsewhere. practicality d. budgets b. and will. ____. a dollar today is worth more than a dollar tomorrow. environmental impact b. growth c. and ____ analysis. vision ANS: C PTS: 1 REF: 44 6. One method for selecting projects based on broad organizational needs is to first determine whether they meet three important criteria: need. resource allocation d. Projects should first and foremost address business ____. Projects that address competitive ____ are much more likely to be successful because they will be important to the organization’s competitive position. a. ambition c. tactics b. portfolios c. a. variable d. ventures d. products d. structure . fixed c. In the four-stage planning process for selecting projects. well-defined ANS: A PTS: 1 REF: 44 8. positive c. zero b. project planning c. financial c. or expenses from income. 2. strategy ANS: D PTS: 1 REF: 43 5. practices ANS: C PTS: 1 REF: 43 4. efficiency ANS: B PTS: 1 REF: 44 7. economic b. statements d. time d. According to the ____ value of money. discretionary ANS: B PTS: 1 REF: 45 10.

Return on investment c. ____ is the result of subtracting the project costs from the benefits and then dividing by the costs. Internal Return Rate d. =npv(discount rate. The payback period ANS: A PTS: 1 REF: 48 15. ANS: A PTS: 1 REF: 45 11. Which of the following formulas is used by Excel to calculate NPV? a. =npv(range of cash flows) d. your ROI is ____ %. weighted c. range of cash flows) b. charts c. cash flow b. a. $100 ANS: C PTS: 1 REF: 49 18. 112 b. Project managers must be sure to check with their organization to find out its guidelines for when discounting starts. a. ($100) d. 212 ANS: C PTS: 1 REF: 48 16. After assigning weights for the criteria and scores for each project.200. multiplying c. Accrual b. dividing . A(n) ____ scoring model is a tool that provides a systematic process for selecting projects based on many criteria. opportunity ANS: A PTS: 1 REF: 50 19. NPV b. prime c. Payback occurs in the year when the cumulative benefits minus costs reach ____. Given discounted benefits of $516. format b. you calculate a weighted score for each project by multiplying the weight for each criterion by its score and ____ the resulting values. results ANS: C PTS: 1 REF: 46 12. Payback d. a. what discount rate to use. A ____ rate is the rate used in discounting future cash flows. a. =npv(discount rate) ANS: C PTS: 1 REF: 47 14. Return c. ____ period is the amount of time it will take to recoup—in the form of net cash inflows—the total dollars invested in a project. $0 b. biased d. 10 c. a. variable b. a. and what ____ the organization prefers. markup d. a. technique d. Residual ANS: B PTS: 1 REF: 49 17. discount ANS: D PTS: 1 REF: 47 13. ($1400) c. 89 d. =npv() c.000 and discounted costs of $243. a.

a. adding d. Opportunities b. You can establish weights by assigning ____. An IT project in the ____ category could help transform the business. a. organizations need to decide if it is advantageous to manage several projects together as part of a(n) ____. hypothetical ANS: C PTS: 1 REF: 51 21. investment c. a. The goal of ____ portfolio management is clear: to help maximize business value to ensure enterprise success. Portfolios d. points ANS: D PTS: 1 REF: 52 22. a. redundant d. Problems d. a. and perform a “____” analysis. a. b. growth c. growth b. values d. what-if b. you can enter the data. program ANS: C PTS: 1 REF: 56 25. Projects b. subtracting ANS: B PTS: 1 REF: 51 20. discretionary ANS: C PTS: 1 REF: 59 27. After deciding which projects to pursue. results c. Directives c. aggregate c. core ANS: D PTS: 1 REF: 59 . query d. project b. cluster b. or some external influence. venture b. Programs ANS: B PTS: 1 REF: 57 26. ____ should be formed and continuously updated to help the organization as a whole make better strategic decisions. scenario c. create and copy formulas. group ANS: B PTS: 1 REF: 54 24. a. ancillary c. interest d. management. An IT project in the ____ category must be accomplished to run the business. ____ are new requirements imposed by government. Thresholds ANS: A PTS: 1 REF: 54 23. Monitors c. assessment d. a. program d. scores b. If you create the weighted scoring model in a spreadsheet.

they feel overworked ANS: C PTS: 1 REF: 60 COMPLETION 1. ____________________ analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time. In portfolio management the “____” task should occur first. predicting future trends. put all projects in one list ANS: D PTS: 1 REF: 60 30. especially during tough economic times. and projecting the need for new products and services. from simplest to most complex. prioritize projects on a list b. a. ten ANS: B PTS: 1 REF: 60 29. 28. ANS: Financial PTS: 1 REF: 44 4. there is too much risk b. Weaknesses. six b. divide projects into investment categories d. Studies show that one of the main reasons people quit their jobs is because ____. ____________________ planning involves determining long-term objectives by analyzing the strengths and weaknesses of an organization. A SWOT analysis involves the examination of Strengths. Opportunities. apply modern portfolio theory c. ____________________ considerations are often an important aspect of the project selection process. they feel they do not make a difference d. and ____________________. studying opportunities and threats in the business environment. ANS: Net present value NPV . they feel they do not make enough money c. ANS: Threats PTS: 1 REF: 39 3. ANS: Strategic PTS: 1 REF: 39 2. An organization can view project portfolio management as having ____ levels. five d. a. a. two c.

____________________ analysis determines how much time will lapse before accrued benefits overtake accrued and continuing costs. ANS: factor PTS: 1 REF: 48 8. ANS: Payback PTS: 1 REF: 49 . ANS: discount PTS: 1 REF: 47 7. NPV analysis is a method for making equal ____________________ between cash flow for multiyear projects. The annual discount ____________________ is a multiplier for each year that is based on the discount rate and year. You can determine a project’s ____________________ by finding what discount rate results in an NPV of zero for the project. ____________________ is the result of subtracting the project costs from the benefits and then dividing by the costs. Net present value (NPV) NPV (Net present value) PTS: 1 REF: 44 5. ANS: internal rate of return IRR internal rate of return (IRR) IRR (internal rate of return) PTS: 1 REF: 48 10. ANS: Return on Investment ROI Return on Investment (ROI) ROI (Return on Investment) PTS: 1 REF: 48 9. ANS: comparisons PTS: 1 REF: 45 6. A(n) ____________________ rate is the rate used in discounting future cash flows.

. management. You can determine minimum scores or ____________________ for specific criteria in a weighted scoring model. ANS: infrastructure PTS: 1 REF: 55 16. ANS: strategic PTS: 1 REF: 57 18. Grouping related ____________________ into programs helps improve coordination through better communications. planning. A program for IT ____________________ projects might include purchasing new hardware. software.11. and control. innovation. and networking equipment. and hire workers for less money if it is managing the construction of 100 houses instead of just one house. A construction firm using ____________________ of scale can purchase materials. and financial performance—to a series of defined metrics. ANS: scorecard PTS: 1 REF: 52 13. ANS: economies PTS: 1 REF: 55 15. obtain services. The core category of IT projects labeled as ____________________ costs must be funded for a company to stay in business. A(n) ____________________ is a group of projects managed in a coordinated way to obtain benefits and control not available from managing them individually. operational efficiency. ANS: program PTS: 1 REF: 55 14. or determining standards for IT. ANS: projects PTS: 1 REF: 56 17. A balanced ____________________ is a methodology that converts an organization’s value drivers—such as customer service. Project portfolio management focuses on ____________________ issues while individual projects often focus on tactical issues. ANS: thresholds PTS: 1 REF: 52 12.

time. It often takes time to develop and reach agreement on these criteria. how many relate to marketing. consistent. ____________________ projects helps you see the big picture. ANS: portfolios PTS: 1 REF: 60 ESSAY 1. programs. and ____________________. such as how many projects are supporting a growth strategy. and logical process for selecting projects. For example. ANS: nondiscretionary PTS: 1 REF: 59 19. how many are helping to increase profit margins. Holding facilitated brainstorming sessions or using software to exchange ideas can aid in developing these criteria. a project manager overseeing an apartment building project might notice that some workers are much more efficient than others. ANS: Although people in organizations identify many potential projects as part of their strategic planning process. PTS: 1 REF: 50 . ANS: Categorizing PTS: 1 REF: 60 20. and how many relate to materials. It is important for organizations to develop a fair. how do you identify criteria important to the project selection process? ANS: The first step in creating a weighted scoring model is to identify criteria important to the project selection process. and cost goals. She might suggest a project to provide standardized training on specific skills. Provide two examples demonstrating the value of identifying projects through the observation of day-to-day operations. It is important for organizations to encourage workers at all levels to submit project ideas because they know firsthand what problems they are encountering and what opportunities might be available. Some possible criteria for projects include the following: Supports key business objectives Has a strong internal sponsor Has strong customer support Uses a realistic level of technology Can be implemented in one year or less Provides a positive NPV Has low risk in meeting scope. A marketing analyst might notice that competitors are using new forms of advertising and suggest a project to respond to this competition. they also identify projects by working on day-to-day operations. When creating a weighted scoring model. PTS: 1 REF: 42 2.

These problems can be current or anticipated. Increasing authority: A program manager responsible for building one hundred houses will have more authority than a project manager responsible for building one house. however. Project portfolio managers and other senior managers. For example. ANS: Problems are undesirable situations that prevent an organization from achieving its goals. PTS: 1 REF: 53-54 4. This coordination of work usually saves time as well as money. Likewise. reassigning resources from one project to another. Describe how coordinating housing projects within one program can lead to saving time and increasing authority. more memory. Running any large organization is complex. For example. or taking other actions that might negatively affect individual projects or programs to help the organization as a whole. one person or group can be responsible for similar work. Describe the role of the project portfolio manager in relation to the roles of project manager and program manager. the company could initiate a project to enhance the current system by adding more access lines or upgrading the hardware with a faster processor. such as obtaining all the permits for all the houses. For example. Describe how problems. as is project portfolio management. ANS: Saving time: Instead of each project team having to perform similar work. must focus on how all of an organization’s projects fit together to help the entire enterprise achieve success. PTS: 1 REF: 55 5. program managers focus on making their programs successful. a college or university may have to meet a requirement to not collect or use a student’s social security number. Opportunities are chances to improve the organization.3. For example. Directives are new requirements imposed by management. government. users of an information system might be having trouble logging on to the system or getting information in a timely manner because the system has reached its capacity. That might mean canceling or putting several projects on hold. In response. PTS: 1 REF: 57 . such as negotiating better prices with suppliers and obtaining better services in a more timely fashion. by grouping the projects into a program. a university might have to close a campus in order to provide quality services at other campuses. or some external influence. an organization could implement a project to train workers on important skills that will make the organization more competitive. or more storage space. opportunities. The program manager can use this authority in multiple situations. and directives can drive the project selection process. ANS: Project managers strive to make their projects successful and naturally focus on doing whatever they can to meet the goals of their particular projects. suggesting changes in project leadership.