Professional Documents
Culture Documents
Assignment no: 2
The project ideas as a process of identification of a project begin with an analytical survey of
the economy (also known as pre-investment surveys). The surveys and studies will give us
ideas.
While selecting a project, the following project selection criteria should be kept in mind:
Realism: The project selection model should consider all the risk factors such as
the cost and time that influence the decisions of a project manager. The model
should also explain the objectives of the project manager and the firm.
Capability: The selection model should help the project manager take
appropriate decisions by considering the risk and constraints involved in the
project. The selection model should be capable of evaluating the future project
proposals on the
basis of the expected returns of the project.
.
Cost: The various costs associated with the right project selection model should
be kept at the minimum level. The costs incurred in designing a project selection
model consists of data generation, processing and storage expenses. The objective
here is
to identify the best project selection model.
Flexibility: The project selection model provides the desired results within the
stated conditions of the firm. The model should be flexible enough to adjust with
the
environmental changes of the firm.
1. Pre-Screening
2. Individual Project Evaluation
3. Screening
4. Portfolio Selection
5. Portfolio Balancing and Adjustment
6. Model Selection and Development
1. Pre-Screening:
In this stage, all infeasible projects are eliminated from funding eligibility. Projects that fail to
deliver overall country development goal or goal of the development programme’s and
restricted by regulations are eliminated first.
Pre-screening targets to minimise the workload or information overload for later stages.
Duplicate projects competing for same funds are normally eliminated if it coincides with
existing projects‘ benefit.
Quantitative techniques like Net Present Value (NPV), Payback period, Internal Rate of
Return (IRR), Expected Commercial Value (ECV), etc are more often used in this stage and
qualitative inputs are considered under a common scale (e.g. satisfactory or dissatisfactory).
3. Screening:
If there is any pre-set economic criteria in the guidelines form of the programme’s those are
considered in this stage. The results found in previous stage are considered for each project
and any non-mandatory projects failing to meet pre-set economic criteria are taken out.
4. Portfolio Selection:
This stage tries to combine the results of earlier stage and makes a portfolio of project that
satisfies the programme’s development goals best. Based on the objectives of the
programme’s a ranking of the projects is made by the selection committee and resources are
allocated to the maximum available.
During the life span of the programme, management tries to have a set procedure, models
based on the organisation‘s culture, experience and availability of the information needed for
using specific techniques. Several recommended tools, which can best fit certain selection
stages.
1. Numeric Models:
These models use numbers as input for selecting a project. Numeric models are of two types:
1. Profit or profitability
2. Scoring
Profit Or Profitability
These models consider monetary and non-monetary factors. The biggest advantage of the
profitability model is that it is easy to understand and use. Following are the types of
profitability models:
1. Payback period
2. Average Rate of Return (ARR)
3. Net present value Method
4. Internal Rate of Return Method
5. Profitability index
1.Payback period:
This is the easiest way of analyzing project ideas. The payback period represents the time the
project takes to return the money spent on the project.
The payback period is calculated from the following formula:
5.Profitability index (PI):
Also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of
present value of cash inflows to initial investment of a proposed project. It is a useful tool for
ranking projects because it allows you to quantify the amount of value created per unit of
investment.
Profitability index = PV of future cash flow / Initial Investment
Scoring
These models involve multiple decision criteria for selecting a project. In scoring models, the
decisions are taken after discussions between the project team and the top-level management.
Following are the types of scoring models:
Unweighted 0-1 factor: The management lists the factors that are considered in
rating a project. Management consists of a team of raters who help selection of the
project.
The people involved in the team must be familiar with the organizational goals. In
this model, the list of factors is provided to the team of raters and the project is
selected on the basis of the score given to it.
The benefit of using this model is that it gives equal importance to the opinions of
all raters on the basis of which the final result is obtained.
Unweighted factor scoring: In this model, the raters can select any of the values
on a scale of 1 to 5 in which 5 is very good, 4 is good, 3 is fair, 2 is poor and 1 is
very poor.