Welcome

CVEN 9731 – Project Management Framework

Dr Ali Kashani
ali.kashani@unsw.edu.au

Lecture Week 10
 Lecture 10 – Project Selection Part 3

Learning Objectives
 Understand elements of Project Appraisal for Feasibility Report
 Learn Scoring Models for comparison of projects based on established criteria
 Learn how to use Decision Matrix for Project Selection

© Dr Ali Kashani
Project Appraisal (Feasibility Report)

 Financial Appraisal
 Market Appraisal
 Technical Appraisal
 Socio-Economic Appraisal
 Environmental Appraisal

**A Feasibility Report considers all these elements prior to project adoption**
 Market Appraisal
 Aggregate future demand Existing Service/ product

Demand
 Market share
 Current and future competition
 Location and accessibility of consumers
 Technological scenario/Obsolescence
 Possible pricing options New Service/ product

Demand
 Consumer behaviour (motivations, attitudes,
preferences, requirements) ?
 Distribution channels and marketing policies
 Administrative, technical and legal constraints
Technical Appraisal

 Preliminary tests and studies

 Availability of raw materials and other resources
 Optimal scale of operations
 Choice of suitable production process
 Choice of appropriate machines and equipment
 Recycling and waste disposal
 Proper layout of plant and buildings
 Realistic work schedules
 Socially acceptable technology
Socio-Economic Appraisal

 Social cost‐benefit analysis

 Impact of project on distribution of income in society
 Impact on level of savings and investment in society
 Jobs creation
 Higher education and skills
 Recreation facilities
Environmental Appraisal

 Reduce greenhouse gas emission and global warming

 Enhance and protect biodiversity and ecosystems
 Improve air and water quality
 Reduce waste and landfill and encourage
recycling/reusing (circular economy)
 Avoid deforestation and limit use of farmlands
 Conserve natural energy resources, minerals and
materials
Scoring Models

Multi-attribute (Scoring) decision making methods for Project Selection:

 Unweighted binary (0–1) factor model

 Unweighted factor model
 Weighted factor model
 Decision Matrix (general methodology)
Unweighted 0-1 Factor Model

 List of ‘Selection Criteria’ or ‘Factors’

 Score the projects on each Selection Criteria
 Each project gets a total score
 Main advantage:
 using multiple criteria
 Major disadvantages:
 It assumes all criteria are of equal importance
 It allows for no gradual scaling to which a specific project meets the various criteria
(binary or 0-1).
Unweighted 0-1 Factor Model Example
Unweighted Factor Scoring Model

 The binary (0-1) is replaced with a factor score.

 Typically a 1-5 scale (excellent, good, fair, poor, very
poor)
 Column of scores is summed.
 Projects with high scores are selected.
 Easy to compute (sum of scores or average).
Disadvantage
 Less important factors are weighted the same as
important ones.
Unweighted Factor Scoring Model (Examples)
Unweighted Factor Scoring Model (Calculation)

Poor Fair Good V. good Excellent

(1) (2) (3) (4) (5)
Cost
Risk
Return
Hazard

Score = 2+3+4+2=11
Weighted Factor Model

 Each factor is weighted relative to its importance.

 Weighting allows important factors to stand out
(higher values mean more desirable factor).
 Weights of factors need to sum to one.
Weighted Factor Model (Example)
Advantages of Scoring Models

 Allow multiple criteria

 Simple to evaluate and compare
 Direct reflection of managerial policy
 Easily altered
 Allow for more important factors
 Allow easy sensitivity analysis
Disadvantages of Scoring Models

 Relative and subjective measure

 Elements are assumed to be independent
 Unweighted models assume equal importance
Decision Matrix

 Sometimes Factors Criteria Unit Value range

(Selection Criteria) C1 Investment Million $ 10 – 2
must be assessed via C2 IRR Percentage 10 - 40
a mix of qualitative C3 Payback Years 10 - 2
(good or bad) and Environmental Very high, high, medium,
quantitative (costs, C4
Disturbance low, very low
duration, etc.) values Very poor, poor, medium,
C5 Future growth
good, very good

Community Very poor, poor, medium,

C6 Development good, very good
Decision Matrix (Continued)
Criteria

C1 Investment C1 C2 C3 C4 C5 C6
Projects
C2 IRR
C3 Payback P1 10 40 8 high Good v. Good
Environmental
C4
Disturbance P2 6 25 4 v. high Good v. Good
C5 Future growth
P3 8 30 10 low v. Good medium

Community P4
C6 3 10 2 medium poor v. poor
Development
P5 2 20 2 v. low v. poor poor

C1, C3 and C4 are the cost, time, and environmental disturbance criteria: we want to minimise them
C2, C5 and C6 are the benefit criteria: we want to maximise them
Decision Matrix (Example)

 Consider three project proposals for construction of a structure (each proposing the
use of a different material) and the following four criteria are considered in
assessment.
C1 = Total Estimated Embodied Energy (Gj)
C2 = Life cycle cost (LCC)
C3 = Recyclability (v. low, low, average, high, v. high)
C4 = Local availability (v. low, low, average, high, v. high)
 Decision Matrix (Example) - Continued
Criteria

C1 C2 C3 C4
Projects
C1 = Total Estimated
Embodied Energy A1 50 130 high average
C2 = Life cycle cost (LCC)
C3 = Recyclability A2
C4 = Local availability 75 80 low v. high

A3
100 110 v. high high

C1 and C2: we want to minimise them

C3 and C4: we want to maximise them

Decision Matrix (Example) - Continued

Numerical scale for intangibles

Cost attributes Benefit attributes

0

Very high 1 1 Very low

High 3 3 Low

Average 5 5 Average

Low 7 7 High

Very low 9 9 Very high

10
 Decision Matrix (Example) - Continued

Step 1: Obtain the decision matrix after using a numerical scale for intangibles

Criteria

C1 C2 C3 C4 C1 C2 C3 C4
Projects Projects

A1 50 130 high average A1 50 130 7 5

A2 A2 75 80 3 9
75 80 low v. high

A3 A3 100 110 9 7
100 110 v. high high
 Decision Matrix (Example) - Continued

Step 2: Obtain the normalized decision matrix, R, using the

Example: X11 =50/(50^2+75^2+100^2)^0.5

Projects
C1 C2 C3 C4

0.371391 0.690942 0.593732 0.40161

A1 50 130 7 5

A2 75 80 3 9
0.557086 0.425195 0.254457 0.722897

0.742781 0.584643 0.76337 0.562254

A3 100 110 9 7
Decision Matrix (Example) - Continued

Step 3: Obtain the weighted decision matrix, V, by multiplying each column of R by the
corresponding weight.

0.2 0.4 0.1 0.3

× × × ×
0.371391 0.690942 0.593732 0.40161 0.074278 0.276377 0.059373 0.120483

0.557086 0.425195 0.254457 0.722897 = 0.111417 0.170078 0.025446 0.216869

0.742781 0.584643 0.76337 0.562254 0.148556 0.233857 0.076337 0.168676

Decision Matrix (Example) - Continued

Step 4: Obtain the ideal (V*) and the negative ideal (V-) solutions from the weighted decision
matrix V.
V* = (lowest C1, lowest C2, highest C3, highest C4) = ( 0.074278, 0.170078, 0.076337, 0.216869)

V- = (highest C1, highest C2, lowest C3, lowest C4) = (0.148556, 0.276377, 0.025446, 0.120483)

C1 C2 C3 C4

0.074278 0.276377 0.059373 0.120483

0.111417 0.170078 0.025446 0.216869

0.148556 0.233857 0.076337 0.168676

Decision Matrix (Example) - Continued

Step 5: Compute the separation measure from the ideal (S*i ) and the negative ideal (S-i )
solutions for all projects (each row).

For each row (i=1, 2, 3) calculate:

S*i = Sq root (sum of squares for j=1 to 4 of (vij – vj*))
0.074278 0.276377 0.059373 0.120483
S-i = Sq root (sum of squares for j=1 to 4 of (vij – vj -))
vj* = ideal solution in each column (0.07428, 0170078,..) 0.111417 0.170078 0.025446 0.216869

vj - = negative ideal solution in each column (0.148556,…)

0.148556 0.233857 0.076337 0.168676

Example: S*1 = ((0.074278 - 0.074278)^2 + (0.276377-0.170078)^2 +(0.059373- 0.076337)^2+

(0.120483-0.2169869)^2)^0.5 = 0.144491
Decision Matrix (Example) - Continued

Ideal Solution Negative Ideal Solution

S*1 = 0.144491 S-1 = 0.081659

S*2 = 0.063002 S-2 = 0.14822

S*3 = 0.109122 S-3 =

0.081978
Decision Matrix (Example) - Continued

Step 6: For each alternative determine the relative closeness to the ideal solution
(C*i, i=1,…,m) as C*i = S -/(S * + S -)

C*1 = 0.361085

C*2 = 0.701727

C*3 = 0.428981

Notice that the closeness rating is a number between 0 and 1, with 0 being the worst
possible and 1 the best possible solution.
 Decision Matrix (Example) - Continued

Step 7: Determine the preference order by arranging C*i in the descending order

The preference order for the projects in this example is C*i is not related to Ci
Criteria
A2 (C*2 = 0.701727, highest)
C1 C2 C3 C4
A3 (C*3 = 0.428981) Projects

A1 (C*1 = 0.361085, lowest)

A1 50 130 high average
C1 = Embodied Energy – weight: 0.2 A2
C2 = Life cycle cost (LCC) – weight: 0.4 75 80 low v. high
C3 = Recyclability – weight: 0.1
C4 = Local availability – weight: 0.3 A3
100 110 v. high high
The effect of weights on final decision is obvious
 Audience Q&A Session

ⓘ Start presenting to display the audience questions on this slide.

End of Lecture 10