CHE620

PROJECT MANAGEMENT

Faculty of Chemical Engineering

By: Cik Siti Khatijah Jamaludin

• Course Outcomes

1) Ability to apply the knowledge and function

effectively as a project manager and team
member.

2) Ability to demonstrate the communication

skills gained through oral and writing.
3) Ability to interpret the principles and practice of
project management in chemical engineering
application.
• Program Outcomes

1) Ability to communicate effectively not only

with engineers but also with the community
at large.
2) Ability to function effectively as an
individual and in a group with the capacity to
be a leader or manager as well as an
effective team member.
3) Ability to apply entrepreneurial business
acumen in engineering.
 Some important details about CHE620…
• Credit hours : 3
• Contact hours : 4 (3 hrs lectures & 1 hr tutorial)
• Core subject
• No pre-requisite required
• Methods of instruction: Lecture, tutorial,
presentation, cooperative learning & mini-projects.
 Chapters covered in CHE620..
• Chapter 1 : Introduction/ Overview of Project Management
• Chapter 2 : Project Manager, Organisation and Team
• Chapter 3 : Planning the Project
• Chapter 4 : Chemical Product Design
• Chapter 5 : Feasibilities Studies of a Chemical
Manufacturing Process
• Chapter 6 : Scheduling the Project
• Chapter 7 : Allocating Resources to the Project
• Chapter 8 : Budgeting the Project
• Chapter 9 : Monitoring and Controlling the Project
• Chapter 10: Evaluating and Terminating the Project
• Chapter 11: Special Topics
Text books….

1) Project Management in Practice

(4th Ed., 2011)
Authors: Samuel J. Mantel Jr. , Jack R.
Meredith , Scott M. Shafer , Margaret M.
Sutton
Publisher: Wiley & Sons Inc.
2) Analysis, synthesis, and design of
chemical processes (3rd Ed., 2009)
Authors: Richard Turton, Richard C.
Bailie, Wallace B. Whiting
Publisher: Prentice Hall

3) Chemical Engineering Design Project: A Case

Study Approach (2nd Ed, 1989)
Authors: Martyn S. Ray & Martin G. Sneeby
Publisher: Gordon and Breach Science
Publisher
 Assessment…
Final Exam : 60 %
Mini-project : 20 %
Test : 10 %
In-class assessment : 10 %
Total : 100 %
 Instructors/ Lecturers…
Week 1-7 : Cik Siti Khatijah Jamaludin
email :sitikhatijah@salam.uitm.edu.my
Contact : 03-5544 8209 / 017-4595937
room : Lecturers’ Room, Level 9, FKK

Week 8-14: Puan Siti Fatma Abd. Karim

 Other important details…
• Attendance is compulsory. Students who fail
to comply 80% of the attendance will be
barred from taking the final examination.
• Marks will be deducted for late submission of
assignment/report at a rate of 50% per week
after the due date.
• This is an interactive class. Your participation
is class discussion will be assessed. So, please
be an active student!
Employers ranked Communication skills, Desire to learn,
Passion & Commitment, Team players and Flexible/
Adaptable as Top 5 Qualities in Fresh Graduates
 Lecture 1 Week 1
Learning Objectives
1) To define the term ‘project’
2) To recognize the characteristics of a project
3) To provide examples of projects
4) To differentiate between a project and a non-
project
5)Define and provide the scope of project management
6)Explain the difference between project management
and general management
 What Is a Project?
• A project is “a temporary endeavor undertaken to
accomplish a unique product or service”-(PMBOK®
Guide 2000, p. 4)
 Stands for Project
Management Book of
Knowledge.
 a book which presents a
set of standard
terminology and
guidelines for project
management
 Published by: Project
Management Institute
(PMI) - http://www.pmi.org
 Other definitions of a Project…
• Specific, timely, usually multidisciplinary, and
always conflict ridden (Mantel et al.)
• Series of activities or tasks, specific objectives,
defined start and end dates, funding limits,
consumes resources, multifunctional (Kerzner)
What are the main characteristics of a
project???

– Unique purpose/ specific/ one time and contains

well-defined objectives
– Temporary (have a definite start date and an
expected completion date)
Other additional characteristics of a project:

– Require resources, often from various areas

– Should have a primary sponsor/customer/client
# The project sponsor usually provides the
direction and funding for the project
– Involve uncertainty
– Has unknown elements, which therefore create risk
– Brings about change
– Often multidisciplinary
 Example of Projects…

The newly launched Penang 2nd Bridge

(Sultan Abdul Halim Muadzam Shah Bridge)

 Project started: August 2006 Project ended: February 2014

 Purpose : A second bridge to link the (penang) island to the mainland. It is seen as a
key catalyst in the socio-economic development of the Northern Corridor
Economic Region (NCER) of Malaysia (source: Wikipedia)
 Other example of projects..
• Building a new chemical plant
• Writing up a thesis
• Planning a birthday party for your mother
• Sending an astronaut to the space
• ??
• ??
 What is NOT a project??
• Something done as a routine (ongoing, repetitive
activities – lacking the ‘uniqueness’.
• Rarely implies the implementation of something
new.
• Examples of non-project:
 Attending classes every week
 Renewing road tax every year
 Company’s annual grand meeting
 Shut down/ Turn around of a chemical plant
 ??
 ??
 Quiz- Are these projects?
• Building a house Yes No

• Lecturer giving lectures Yes No

• Mowing the lawn

Yes No

• Planning a wedding Yes No

Yes No
• Setting up a business
 Megaprojects…
• Megaprojects may be defined as:
“Projects that cost more than US$1 billion (extremely large-scale investment) and
attract a lot of public attention because of substantial impacts on communities,
environment, and budgets”
OR
“Initiatives that are physical, very expensive, and public“

• Sometimes called “major program”

• Require care in the project development process to reduce any possible optimism bias and
strategic misrepresentation
• Examples of megaprojects include bridges, tunnels, highways, railways, airports, seaports,
power plants, dams, wastewater projects, Special Economic Zones (SEZ), oil and natural gas
extraction projects, public buildings, information technology systems, aerospace projects,
weapons systems, huge charity campaign.
• "Mega" also implies the size of the task involved in developing, planning, and managing
projects of this magnitude.
• Other projects that cost less than $1 billion are sometimes also called megaprojects, it
depends on the context. Example, projects less than 1 billion in a medium sized town may
be considered “mega”, this would not be necessarily be the case for a similar sized project in
a major world city. Source: Wikipedia
Examples of megaprojects…
 Program

Program: “A group of related projects managed in

a coordinated way to obtain benefits and
control not available from managing them
individually.”

*PMI, A Guide to the Project Management Body of Knowledge

23
(PMBOK® Guide) (2004), p. 16.
 Project Management
Management : is the process of Planning, Organizing,
Controlling and Measuring

• Planning: The most critical and gets the least amount of

our time
**Beginning with the End in mind-Stephen Covey**
• Organizing: Orderly fashion
(Contingent/Prerequisites)
• Controlling: Critical if we are to use our limited resources
wisely
• Measuring: To determine if we accomplished the goal or
met the target.
Project management :“The application of
knowledge, skills, tools, and techniques to
project activities in order to meet project
requirements” (PMI*, Project Management Body of
Knowledge (PMBOK® Guide), 2004)
Project Management Framework
 Project Stakeholders
• Stakeholders are the people involved in or affected
by project activities
• Stakeholders include
– the project’s sponsor/client and its project team
– he project’s contractor and its project team
– support staff
– users
– suppliers
– opponents to the project
 Project Management Tools and
Techniques
• Project management tools and techniques assist
project managers and their teams in various
aspects of project management

• Some specific ones include

– Project Charter, scope statement, and WBS (scope)
– Gantt charts, network diagrams, critical path analysis,
critical chain scheduling (time)
– Cost estimates and earned value management (cost)
Project Management….

Work Smart Not Hard !!!

Project Management vs. General Management

• Basically, the two disciplines overlap with each other.

• General management also encompasses planning,
organizing, staffing, executing and controlling but it is
more applicable to operations of the ongoing
enterprise.
• Project management principles are more specific to
implementation of a change, a project, which is a
unique and temporary with a finite start and finish time
and has all the attendant problems and risks associated
with it.
Some notable differences…
Project General
Management Management
Higher
Conflict Lower level
level of
of conflict
conflict

Unique Uniqueness Routine

Requires much more

carefully detailed Requires
plan. Project success Planning good
is absolutely planning
dependent on such
plan

Budgets are newly

created for each Primarily
modifications of
project & often
Budget budgets for the
cover several same activities of
budget periods in previous periods
the future
Some notable differences (cont’)…
Project General
Management Management
Each project Schedule/
has own sequence
Conflict Not altered
schedule of activities

Yes (crosses No (rarely

Multidisci- crosses the
disciplines plinary
freely) boundary)

Difficult to define. Structured

Responsibility
Managerial and
without the
authority of rank or Hierarchy reasonably
position is common well defined
in PM

Source: Mantel et. al (2011)

Ref: BENATECH INC. (2009)
Where is a project manager/ project management team in an
organization??
 Learning Objectives
By the end of this lecture, students should be able to:

• Describe 3 goals of a project

• Relate the importance of negotiation skill in
Project Management
• Identify different types of project life cycle
• Understand various evaluation models for
selecting projects
 3 Goals of a Project
• All projects have 3 interrelated objectives:
– Scope : Generate deliverables that satisfy the client
– Time : Finish on schedule
– Cost : Meet the budget limit
But…….
• Uncertainties are bound to happen in any project,
which will threaten the pre-determined scope, time
and budget.
• It is the project manager’s duty to balance these three
often competing goals.
A must-have skill in PM: Negotiation skill..

Negotiation
Mutual discussions for the purpose of arriving at the
terms of a transaction or agreement
• The nature of the role of a project manager makes it
essential for him/her to have good negotiation skills.
• There are usually many stakeholders involved in a project
and most projects have team members from different
departments. This usually results in several different points
of view which can sometimes make it difficult to keep the
project on track and within the original scope.
• Negotiation skills help a project manager by reaching an
agreement or a compromise of some kind on the issue that
may be causing a problem or delay.
• Skilled negotiators have the ability to manage the situation
so that all parties involved feel as though they had a say
that was taken into consideration.
 Types of negotiation in
PM

Win-win Win-lose
negotiation negotiation

A win-lose negotiation is not

Within an organization, a win-win suitable for PM. Never
negotiation is mandotory appropriate when dealing with
other members of organization
• Successful win-win negotiation often involves taking
a synergistic approach by searching for the ‘third
alternative’
• Example win-win negotiation:
Consider a product development project focusing on the development of a new inkjet
printer. A design engineer working on the project suggests adding more memory to
the printer. The PM initially opposes this suggestion, feeling that the added memory
will make the printer too costly. Rather than rejecting the suggestion, however, the PM
tries to gain a better understanding of the design engineer’s concern.
Based on their discussion, the PM learns that the engineer’s purpose in requesting
additional memory is to increase the printer’s speed. After benchmarking the competition,
the design engineer feels the printer will not be competitive as it is currently configured.
The PM explains his fear that adding the extra memory will increase the cost of the
printer to the point that it also will no longer be cost competitive. Based on this discussion
the design engineer and PM agreed that they need to search for another (third)
alternative that will increase the printer ’ s speed without increasing its costs. A couple of
days later, the design engineer identifies a new ink that can simultaneously increase the
printer’s speed and actually lower its total and operating costs.

Source: Mantel et al. (2011, pg. 6)

 Class Activity: Negotiation Skill
Form into teams of 3

Activity: Create a win-win negotiation for the scenario

below:
Negotiations for a scarce resource
The person who’s birthday occurs earliest in the year plays the role of the
Negotiating PM. Next birthday is Ali’s Manager. The third (and fourth?)
persons are Observers who note use/abuse of “win-win” techniques.
Background:
The Negotiating PM has a Programmer off sick, and wants to negotiate
two weeks of Ali’s time to work on the Company’s most important project
immediately, because Ali is the best programmer, and knows the tasks.
Delays may affect everyone’s bonus.
Ali’s Manager is concerned the loss of Ali will mean she will not be able
to complete tasks on another project their department is committed to
deliver, because the Negotiating PM has a reputation of over-utilizing
resources
Time: 5 minutes negotiation + 2 minutes presentation
 The Life Cycles of Projects
Life cycle…
 Project Life Cycle

“A collection of generally sequential project phases whose

name and number are determined by the control needs of
the organization or organizations involved in the project.”
-(PMBOK, PMI (2000))
Projects life cycle measures project completion as a function of:
1. Time (schedule), or
2. Resources (budget)
Typical Project Life Cycle…

Time
Beginning/Early Stage Middle Stage/ Final Stage/End
• Idea/ concept developed Implementation Stage Stage
•Project authorized • Results delivered, final
• PM must keep the project on budget report issued
•PM must ensure project plan reflects the and schedule
wishes of client/sponsor. •PM to ensure the
• PM must anticipate uncertainties and specifications of the project
• PM must gauge the abilities of the project interruptions in progress, and negotiate are truly met.
team. appropriate trade-offs to minimize
•PM must must handle all the
•PM must ensure the project plan is damages.
closing out details, making
consistent with the goals of his/her firm. sure there are no loose ends.
 2 different types of Project Life Cycle

The S shape The J shape

Identifying the different life cycles helps the PM to focus

attention on appropriate matters to ensure successful
project completion
Mantel et al. (2011)
 Project Selection

The process of evaluating individual projects or

groups of projects, and then choosing to
implement some set of them so that the
objectives of the parent organization will be
achieved.
• Since projects in general require a substantial investment in
terms of money and resources, both of which are limited, it
is of vital importance that the projects that an organization
selects provide good returns on the resources and capital
invested.

• The proper selection of investment projects is crucial to the

long-run survival of every organization.

• The major function of the selection process is to ensure that

several conditions are considered before a commitment is
made to undertake any project.

• The selection process is often complete before a Project

Manager is appointed to the project.
 Is the project
required by law or
the rules of an
industrial
association?
Does the
organization/firm
Is the project
have the knowledge
potentially
and skills to carry out
profitable? Conditions to the project
Consider in a successfully?
Project
Selection
Process
In the case of R&D
Does the
projects, if the project is
organization
technically successful,
currently have the
does it meets all
capacity to carry out
requirements to make it
the project on its
economically
proposed schedule?
successful?
 a.k.a. project
selection
Project Selection methods
Models

Non-
Numeric
numeric

 Models that use numbers for

evaluation.
 Examples: Payback Period,
Return on Investment (ROI),
Discounted Cash Flow, Internal
Rate of Return, Profitability
Index, Scoring Methods.
 Models that do not use
numbers for evaluation.
 Examples: Sacred Cow,
Operating/ Competitive Necessity,
Product Line Extention,
Comparative Benefit Model.

Both widely used. Many organizations use both at the same

time, or they use models that are combinations of the two.
 Two Critical Facts about Models!

• Models do not make decisions - People do!

Models only aid decision making.
• All models, however sophisticated, are only
partial representations of the reality the
are meant to reflect. Their limitations
should be appreciated as they are only
prediction of what could happen and as
accurate as data they are based on.
MODELS ARE TOOLS, MANAGERS ARE THE DECISION MAKERS!!!
 Important Criteria in Selecting a Model

Realism Ease of
Use

Capability Flexibility

Cost

Easy
Computisation
 Important Criteria in Selecting a Model (cont.)
• Realism - reality of manager’s decision
• Capability- able to simulate different scenarios and optimize
the decision
• Flexibility - provide valid results within the range of
conditions
• Ease of Use - reasonably convenient, easy execution, and
easily understood
• Cost - Data gathering and modeling costs should be low
relative to the cost of the project
• Easy Computerization - must be easy and convenient to
gather, store and manipulate data in the model
 Nonnumeric Models
• Sacred Cow

• Operating Necessity

• Competitive Necessity

• Product Line Extension

• Comparative Benefit
 The Sacred Cow

• Suggested by a senior and powerful official in the

organization.

• Often initiated with a simple comment such as, “If you

have a chance, why don’t you look into . . .,” and there
follows an undeveloped idea for a new product, for the
development of a new market, for the design and
adoption of a global data base and information system,
or for some other project requiring an investment of the
firm’s resources.

• “Sacred” in the sense that it will be maintained until

successfully concluded, or until the boss, personally,
recognizes the idea as a failure and terminates it.
 The Operating Necessity

• A project that is required in order to protect lives

or property or to keep the company in operation.

• I.e. : If a flood is threatening a process plant, a

project to build a protective drain does not
require much formal evaluation, which is an
example of this scenario.
 The Competitive Necessity
• A project that is required in order to maintain the
company’s position in the marketplace.

• The decision to undertake the project based on a

desire to maintain the company’s competitive position
in that market.

– Investment in an operating necessity project takes

precedence over a competitive necessity project
– Both types of projects may bypass the more careful
numeric analysis used for projects deemed to be less
urgent or less important to the survival of the firm.
 The Product Line Extension

• A project to develop and distribute new products

judged on the degree to which it fits the firm’s
existing product line, fills a gap, strengthens a weak
link, or extends the line in a new, desirable direction.
• Sometimes careful calculations of profitability are
not required. Decision makers can act on their beliefs
about what will be the likely impact on the total
system performance if the new product is added to
the line.
 Comparative Benefit Model
• When there are many projects to consider. A selection
committee is appointed with the task to arrange projects into
a rank ordered set based on their perceived benefit to the
company (e.g. the peer review used by research funding
organizations).

• Organization has many projects to consider but the projects

do not seem to be easily comparable. For example, some
projects concern potential new products, some concern
changes in production methods, others concern
computerization of certain records, and still others cover a
variety of subjects not easily categorized (e.g., a proposal to
create a daycare center for employees with small children).

• No precise way to define or measure “benefit.”

 Q-Sort Method
• Q-Sort method is a type of Comparative Benefit Model.
• It is normally used as a rank-ordering method when
there is a large number of projects (>15 or 20 projects)
need to be rank-ordered simultaneously in an
organization.
• Of the several techniques for ordering projects, the Q-
Sort is one of the most straightforward.
 Class Activity
• You are given a handout on Q-Sort method by
your instructor. In a group of 3, discuss the Q-Sort
method. Thereafter, you are required to present
your understanding on Q-Sort method in the
class.
The Q-Sort Method

Source: Mantel et al. (2011,)

 Numeric Models
Financial Assessment
Methods/ Profitability Scoring Methods
Methods

 Select projects on the  Use multiple criteria to

basis of their expected evaluate a project
economic value to the firm
• Unweighted Factor Model
 Concerns with cost and
revenues of the projects • Weighted Factor Scoring Model

Non-discounted Discounted Cash

Cash Flow Flow

• Payback Period • Net Present Value (NPV)

• Average Rate of Return • Internal Rate of Return
• Profitability Index
Non-discounted Cash Flow: Payback Period

• Payback period is the length of time (number

of years) required for a project to repay its
initial fixed investment.

Initial Investment
Pay backPeriod =
Annual Cash Inflow

Uniform Annual Cash Inflow Non-uniform Annual Cash Inflow

•The lower the payback period the better (exposure / risk

to the firm is minimized)
• Example 1 (Uniform annual cash inflow)
Assume a project costs RM200 000 to implement
and has annual cash inflow of RM25 000.
Calculate the payback period.

Solution:

ProjectCost
Pay backPeriod =
Annual Cash Inflow

RM 200,000
Pay backPeriod = = 8y ears
RM 25,000
 • Example 2: Non uniform annual cash flow

A company wishes to buy a new machine for a four year project.

The manager has to choose between machine A and B. Both
machines have the same initial cost (RM35,000) but their cash
flows behave differently over the 4-year period. Determine the
payback period for each machine.

Cash Flows (RM)

Year Machine A Machine B
Initial Cost
0 35000 35000
1 20000 10000
2 15000 10000
3 10000 15000
4 10000 20000
Payback Period 2 years 3 years
 Example 3

Cash Flows (RM)

Year Project A Project B Project C
0 (120000) (120000) (120000)
1 60000 45000 40000
2 60000 45000 70000
3 60000 45000 80000
Payback 2 years 2.67 years 2.125 years
Period
• Advantages of Payback Period:
– Simple and easy to use
– Reduces the project’s exposure to risk and
uncertainties by selecting the project that has the
shortest payback period.
– It may be important to organizations which face cash
flow constraints or need speedy cash recovery.
• Disadvantages of Payback Period:
– It does not consider time value for money, where
the effects of differential inflation and interest rates
could significantly change the results.
– It ignores the importance of cash inflows beyond the
payback period. A project that build up slowly to give
excellent returns would be rejected in favour of a
project with lower early returns if the payback period
was shorter.
– Less meaningful over longer periods of time (due to
time value of money).
 Discounted Cash Flow
DCF techniques seek to remedy some of the defects of the payback period
and accounting rate of return by taking into consideration the time value of
money

Time Value of Money

Before we proceed, there are some

Future Value
accounting concepts you must understand!!

Present Value
Time Value of Money Concept:
• A Ringgit today cannot be compared to a Ringgit in the future. Given a choice of
receiving a Ringgit today or a Ringgit at some point in the future, a rational person
will always choose to receive the Ringgit today.
• In order to compare Ringgit today to Ringgit in the future, we must convert one
into an equivalent amount of money in the other's time period. For example,
assume you are asked, "Which do you prefer to receive - RM4,000 today or
RM5,000 in four years?" To compare the two numbers, we might convert the
RM5,000 to be received in five years into an equivalent amount of money in
"today's Ringgits.“
• The time value of money concept is concerned with two topics: (1) future
value, and (2) present value.
• As shown in the illustration below, the two are mirror images of one
another. (Year 0 stands for "at the present time" or "right now" since year 1
would be 1 year from now, etc.) :

• In a future value problem, we know the amount of money that we have to

invest today (i.e., the present value). What we don't know is how much
money we will have in the future (i.e., the future value).
• In a present value problem, we know the amount of money that we want to
have (or expect to have) in the future. What we don't know is how much
money we need to invest today in order to attain that money in the future.
 • Future value (FV) and Present value (PV) are
interrelated by using this equation:
Time period of
cashflow
Compounding
Process

Interest rate

 Present Value???

Discount rate or
Discounting minimum required rate
Process of return or cost of
capital or cut-off rate
or hurdle rate
 The discount rate
• This is the rate at which you discount future cash flows.
• The discount rate is by how much you discount a cash flow in
the future.
• For example, the value of RM1000 one year from now
discounted at 10% is RM909.09. Discounted at 15% the value
is RM869.57. Paying RM869.57 today for RM1000 one year
from now gives you a 15% return on your investment. The
discount rate is essentially your required annual return on
investment.
• The most difficult aspect related to the proper use of
discounted cash flow is determining the appropriate discount
rate to use. While this determination is made by senior
management, it has a major impact on project selection, and
therefore, on the life of the project.
 Discounted Cash Flow: Net Present Value (NPV)
The net present value (NPV) of a project is equal to the present
value of the cash inflows minus the present value of the cash
outflows all discounted at the discount rate
n
NPV (project) = - I0 +
FV1
1
+
FV2
(1 + k ) (1 + k ) 2
+ .. +
FVn
(1 + k ) n ∑
= - I0 +
FVt
(1 + k ) t
t =1
Where,

FVt = net cash flow from the project in period t

k = the discount rate
n = economic life of the project
I0 = initial investment of project
IF NPV > zero, accept the project
IF NPV = zero, be indifferent to the project
IF NPV < zero, reject the project
 NPV Example
• Initial investment of RM100,000 with a net
cash inflow of RM25,000 per year for 8 years,
a required rate of return of 15%, and an
inflation rate of 3% per year, we have:

8
NPV (project)= - RM100,000 + ∑(1 + 0.15 + 0.03)t
RM 25,000

t =1
= RM1,939

The present value of the inflows is greater than the present value of the outflow – the
NPV is positive. Therefore the project is acceptable.
 NPV Example 2
The management of Fine Electronics Company is
considering to purchase an equipment to be attached with
the main manufacturing machine. The equipment will cost
RM6,000 and will increase annual cash inflow by RM2,200.
The useful life of the equipment is 6 years. After 6 years it
will have no salvage value. The management wants a 20%
return on all investments.

a) Compute net present value (NPV) of this investment

project.
b) Should the equipment be purchased according to NPV
analysis?
Numerical models: Scoring Models
• Scoring models attempt to overcome some of the
disadvantages of financial profitability methods
by incorporating additional decision criteria
• Two broad categories of scoring models
1. Unweighted factor model
a) Unweighted (0-1) Factor Scoring Model
b) Unweighted Factor Scoring Model
2. Weighted factor model

Meredith & Mantel (2009) Project

management: a managerial approach. 7th
ed. Wiley.
 Scoring Method 1- Unweighted (0-1) Factor Model

• Uses a set of relevant factors as determined

by management
• Each factor is weighted the same
• Less important factors are weighted the same
as important ones
• Easy to compute - just total or average the
scores
• The major disadvantage is that the model
assumes that all factors are equally important
Unweighted (0-1) Factor Model: Example 1

Meredith & Mantel (2009) Project management: a managerial approach. 7th ed. Wiley.
 Unweighted (0-1) Factor Model: Example 2
Selection Criteria Project A Project B
Alignment with core business 1 0
Top-management support 1 1
Positive impact on stakeholders 1 0
Stage of technology development 0 1
Adequate knowledge of technology 0 0
Existing facility and equipment 0 1
Availability of raw materials 1 1
Potential market for output 1 1
Probability of share of potential market 1 0
Ability to reach market timely 1 1
Adequate return on investment 0 1
Adequate payback period 0 1
» TOTALS 7 8
Scoring Method 2 – Unweighted Factor Scoring Model

Selection Criteria Project A Project B

Alignment with core business 4 4
Top-management support 4 4
Positive impact on stakeholders 5 2
Stage of technology development 1 4
Adequate knowledge of technology 2 2
Existing facility and equipment 1 3
Availability of raw materials 5 5
Potential market for output 5 5
Probability of share of market 5 1
Ability to reach market timely 5 3
Adequate return on investment 2 3
Adequate payback period 2 5
TOTAL 41 41
 Scoring Method 3-Weighted Factor Scoring Model

• Each criterion weighted according to its perceived

importance relative to the other criteria.

• Against each criterion project is given a score within a range

(5 (or 10) = very good, down to 1 = very poor) to reflect how
it meets the criterion.

• Weighted score for each criterion = Weighting x Score.

 Weighted Factor Scoring Model Example
Project A Project B
Selection Criteria Weighting Score Weighted Score Weigh
Score Score
Alignment with core business 13 4 52 4 52
Top-management support 10 4 40 4 40
Positive impact on stakeholders 10 5 50 2 20
Stage of technology development 6 1 7 4 24
Adequate knowledge of technology 7 2 14 2 14
Existing facility/equipment 4 1 4 3 12
Availability of raw materials 9 5 45 5 45
Potential market for output 10 5 50 5 50
Probability of share of market 10 5 50 1 10
Ability to reach market timely 8 5 40 3 24
Adequate return on investment 8 2 16 3 24
Adequate payback period 5 2 10 5 25
TOTAL 100 378 340
 Advantages of the scoring model
• They allow multiple criteria to be used for evaluation
• Weighted models recognize that some criteria are
more important than others
• Structurally simple and relatively easy to understand
• They are a direct reflection of management policy
• Easily altered to accommodate change in
management policy or priorities
• They allow for sensitivity analysis, because trade-off
between factors is easily observable
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.
 Disadvantages of the scoring model
• Ease of use can lead to the inclusion of too
many criteria
• The output of a scoring model is strictly a
relative measure rather than an absolute
go/no go indication
• Unweighted scoring models assume all criteria
are of equal importance – this is seldom the
case
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.
Analysis Under Uncertainty—The Management
of Risk
• Everything to do with projects is risky
• Some projects, like R&D, are more risky than others,
like construction
• Risks include…
– The timing of the project and its associated cash flow
– Risk regarding the outcome of the project
– Risk about the side effects
• Risk can be assessed by a number of methods,
including simulation
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.
 Distinguishing between risk and
uncertainty
• Risk applies to events that have a known (or
estimated) probability of occurrence.
• Uncertainty applies to events where there is
insufficient data to estimate the probability of
occurrence.
• For effective project management, decisions
should be treated as risks rather than
uncertainties.
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.