PROJECT MANAGEMENT

UNIT 2) PROJECT CHOICE: Project selection;

feasibility evaluation; estimating time/ cost/
resources; profitability evaluation

Sunday, M 1
 PROJECT MANAGEMENT

UNIT 2) PROJECT CHOICE:

2.1) Project selection;

Sunday, M 2
 Project Selection Methods

Common techniques for selection of projects

• Focusing on broad organizational needs
• Categorizing projects
• Performing net present value or other
financial analysis
• Using a weighted scoring model
• Implementing a balanced scorecard
 Project Appraisal

Project appraisal is the process of assessing and

questioning proposals before resources are
committed.
• A means to choose the best projects by being
consistent and objective in choosing projects
• Provide documentation to meet financial and audit
requirements
• Justifies spending money on a project and lays
the foundations for delivery.
• Generally appraisal is done with reference to the
objectives and resources

4
: Project Appraisal

Good appraisal systems should ensure that Project

application, appraisal and approval functions are
separate
• All the necessary information is gathered for
appraisal      
• Those involved in appraisal have appropriate
technical expertise
• There are realistic allowances for time involved.
• Decisions are within a implementers’ powers.
• There are appropriate arrangements for dealing
with novel, contentious or particularly risky
projects.
5
 Project Appraisal
Key issues in appraising projects

Need, targeting and objectives

Detailed description of project, identifying needs/
objectives it aims to meet.
Options
Establishing whether there are different ways of
achieving objectives
Inputs
Ensuring all the necessary people and resources
are in place to deliver project.
Value for money
A key criteria against which projects are appraised
 Project Appraisal
Key issues in appraising projects
Implementation
Scrutinises the plans for implementation, asking
whether staffing, timetable and implementers are
okay.
Risk and uncertainty
Contingency plans to minimize estimated risks.
Forward strategies
Consider mainstream links and implications in case
the project funds are over
Sustainability
Assessment of a project’s environmental, social
and economic impact, positive and negative
7
Project Selection Models
Screening models help managers pick winners
from a pool of projects. Screening models are
numeric or nonnumeric and should have:
Realism
Capability
Flexibility
Ease of use
Cost effectiveness
Comparability 0
3
-
0
4
Screening & Selection Issues
Risk – unpredictability to the firm
Commercial – market potential
Internal operating – changes in firm operations
Additional – image, patent, fit, etc.

All models only partially reflect reality and have

both objective and subjective factors imbedded

0
3
-
0
9
Approaches to Project Screening

Checklist model

Simplified scoring models

Analytic hierarchy process

Profile models
Financial models

03
-0
10
Checklist Model
A checklist is a list of criteria applied to possible
projects.

 Requires agreement on criteria

 Assumes all criteria are equally important

Checklists are valuable for recording opinions and

encouraging discussion
0
3
-
0
7
Simplified Scoring Models
Each project receives a score that is the weighted
sum of its grade on a list of criteria. Scoring models
require:
 agreement on criteria
 agreement on weights for criteria
 a score assigned for each criteria
Relative scores can be misleading!
Score   (Weight  Score) 0
3
-
0
1
Analytic Hierarchy Process
The AHP is a four step process:
1. Construct a hierarchy of criteria and subcriteria
2. Allocate weights to criteria
3. Assign numerical values to evaluation dimensions
4. Scores determined by summing the products of
numeric evaluations and weights
Unlike the simple scoring model, these scores can
be compared!
0
3
-
0
1
 Analytic Hierarchy Process Example

03
-
Copyright © 2013 Pearson Education 14
Profile Models

Show risk/return options for projects.

X
X
7
Maximum 6

Desired Risk
Criteria
X 2 selection as
axes
Risk

X 4 X 5

Efficient Frontier

X 3

X1 Rating each
project on
Minimum Return criteria
03
Desired Return Figure 3.4 -
15
Financial Models
Based on the time value of money principal

Payback period
Net present value
Internal rate of return
Options models

Dealt with in later section

0
3
-
1
 PROJECT MANAGEMENT

UNIT 2) PROJECT CHOICE:

2.2) feasibility evaluation;

Sunday, M 17
 Feasibility Study
What is a feasibility study?

A general estimate used to determine whether a

particular project should be pursued.

It is the measure of how beneficial or practical a

project will be to an organization.

An analysis and evaluation of a proposed

project to determine if it (1) is technically
feasible, (2) is feasible within the estimated
cost, and (3) will be profitable
 Feasibility Study

CONTEXT

Need to understand:
– Goals (the need for the project and the
measurable benefits)
– Scope
– Time to complete
– Estimates of timeline, resource requirements
and costs
 Why a feasibility study?
Objectives:
 To find out if an system development project can be
done:
...is it possible?
...is it justified?
 To suggest possible alternative solutions.
 To provide management with enough information to
know:
• Whether the project can be done
• Whether the final product will benefit intended users
• What the alternatives are (so that a selection can be
made in subsequent phases)
• Whether there is a preferred alternative
Sunday, M 20
 Why a feasibility study?

A management-oriented activity:
 After a feasibility study, management makes a
“go/no-go” decision.
 Need to examine the problem in the context of
broader business strategy

Sunday, M 21
 Feasibility Study Contents
1. Purpose & scope of the study
 Objectives (of the study)
 who commissioned it & who did it,
 sources of information,
 process used for the study,
 how long did it take,…

2. Description of present situation

 organizational setting, current system(s).
 Related factors and constraints.

Sunday, M 22
 Feasibility Study Contents

3. Problems and requirements

 What’s wrong with the present situation?
 What changes are needed?

4. Objectives of the new system.

 Goals and relationships between them

5. Possible alternatives
 …including ‘do nothing’.

6. Criteria for comparison

 definition of the criteria

Sunday, M 23
 Feasibility Study Contents
7. Analysis of alternatives
 description of each alternative
 evaluation with respect to criteria
 cost/benefit analysis and special implications.

8. Recommendations
 what is recommended and implications
 what to do next;
E.g. may recommend an interim/ permanent
solution

9. Appendices
 to include any supporting material.
Sunday, M 24
 Types of feasibility
1) Commercial Feasibility
2) Technical Feasibility
3) Schedule Feasibility
4) Operational Feasibility
5) Economic Feasibility

Sunday, M 25
1) Commercial Feasibility

– Market survey/ Forecast for assessing demand of the

product or service from the Project;
– Competition;
– Regulatory issues;
– Govt. policies for the sector;
– Likely Sales/ Revenue;
– Cost of project;
– Operational Cost after Project completion;
– Funding: Equity and Debt;
– Financing cost;

26
 (2) Technical Feasibility
A measure of the practicality of a specific
technical solution and the availability of technical
resources and expertise.
 Is the project possible with current technology?
 What technical risk is there?
 Availability of the technology:
Is it available locally?
Can it be obtained?
Will it be compatible with other systems?

Sunday, M 27
 (2) Technical Feasibility
What kinds of technology will we need?
• Some organizations like to use state-of-the-art
technology, but most prefer to use mature and
proven technology.
• A mature technology has a larger customer base for
obtaining advice concerning problems and
improvements.
Is the required technology available “in house”?
• If yes, does it have the capacity to handle the
solution?
• If the technology is not available, can it be acquired
What about obsolescence?
Any absorption issues?
Finally cost!
Sunday, M 28
 (2) The Technical assessment variables
Project Execution Inputs
Alternatives
Work
Schedules Manf./Process
Contingency Association Appropriateness
Cash Technical
Plans
arrangements Types
Physical Guarantees
Material etc.
Charts &
Layouts Flows Aux. & utilities
Organization Cost Technology Product focus
Plant Product Mix
Capacity Policy Availability Process focus
Customer focus
Utilities Building Infrastructure Climate
Structure / Location
Construction Site Proximity
Legislation
Plant / Facility
29
 (3) Schedule Feasibility

A measure of how reasonable the project

timetable is.
• Is it possible to build a solution in time to be
useful?
What are the consequences of delay?
Any constraints on the schedule?
Can these constraints be met?

Sunday, M 30
 (3) Schedule Feasibility
How long will it take to get the technical expertise?
We may have the technology, but that doesn't mean we
have the skills required to properly apply that
technology.
• May need to hire new people
• Or re-train existing systems staff
• Whether hiring or training, it will impact the schedule
Assess the schedule risk:
 Given our technical expertise, are the project
deadlines reasonable?
 If there are specific deadlines, are they mandatory or
desirable?
• If the deadlines are not mandatory, the analyst can
propose several alternative schedules.
Sunday, M 31
 (3) Schedule Feasibility

What are the real constraints on project deadlines?

 If the project overruns, what are the
consequences?
• Deliver a properly functioning information system
two months late
• Or deliver an error-prone, useless information
system on time?
 Missed schedules are bad, but inadequate systems
are worse!

Sunday, M 32
 (4) Operational Feasibility

A measure of how well a specific solution will

work in the organization.
• If the system is developed, will it be used?
 Human and social issues…
Potential labour objections?
Manager resistance?
Organizational conflicts and policies?
Social acceptability?
legal aspects and government regulations?

Sunday, M 33
 (4) Operational Feasibility

 How do end-users and managers feel about…

 …the problem you identified?
 …the alternative solutions you are exploring?

 You must evaluate:

 Not just whether a system can work…
 … but also whether a system will work.

Sunday, M 34
 (4) Operational Feasibility

Any solution might meet with resistance:

 Does management support the project?
 How do the end users feel about their role in
the new system?
Which users or managers may resist (or not
use) the system?
People tend to resist change.
Can this problem be overcome? If so, how?
 How will the working environment of the end
users change?
 Can or will end users and management adapt
to the change?

Sunday, M 35
 (5) Economic Feasibility
A measure of the cost-effectiveness of a project or
solution. This is often called a cost-benefit analysis.
• Is the project possible, given resource constraints?
• What are the benefits?
Both tangible and intangible - Quantify them!
• What are the development and operational costs?
• Are the benefits worth the costs?

Economic Feasibility includes:

• Net Present Value Analysis, Cash Flow
• Payback analysis, Break-even point
• Return on Investment Analysis

Sunday, M 36
 (5) Economic Feasibility
Estimating Financial Requirements

Define project cost: (integrate scope, schedule, and

resources)

Define estimate basis

Identify potential risks

Identify contingency/escalation

Identify items not included

 (5) Economic Feasibility
Cost-benefit analysis
 Purpose - answer questions such as:
Is the project justified (will benefits outweigh
costs)?
What is the minimal cost to attain a certain
system?
How soon will the benefits accrue?
Which alternative offers the best ROI?
 Difficulties
Benefits and costs can both be intangible, hidden
and/or hard to estimate
Ranking multi-criteria alternatives
Sunday, M 38
 (5) Economic Feasibility - Benefits
Tangible Benefits: Readily quantified as $ values
Examples: increased sales, cost/error reductions, increased
throughput/ efficiency, increased margin on sales more,
effective use of staff time

Intangible benefits: Difficult to quantify. But maybe more

important! Business analysts help estimate $ values
Examples: increased flexibility of operation, higher quality
products/ services, good customer relations, improved staff
morale

How will the benefits accrue? When - over what timescale?

Where in the organization?
Sunday, M 39
 (5) Economic Feasibility - Costs
Development costs (One Time)
Development and purchasing costs: Cost of development

team, Consultant fees, software used (buy or build)?,

hardware (what to buy, buy/lease)?, facilities (site,
communications, power,...)
Installation and conversion costs:
• Payback installing the system,
analysis
training personnel, file conversion,....
Operational costs (on-going)
System Maintenance: hardware (repairs, lease,
supplies,...), software (licenses and contracts), facilities
Personnel: For operation (data entry, backups), For
support (user support, hardware/ software maintenance,
supplies,…), On-going training costs
Sunday, M 40
(5) Economic Feasibility - Analysing Cost vs Benefit
Identify costs and benefits
 Tangible and intangible, one-time and recurring
 Assign values to costs and benefits

Determine Cash Flow

 Project the costs and benefits over time, e.g. 3-5
years
 Calculate Net Present Value for all future
costs/benefits
• determines future costs/benefits of the project in
terms of today's dollar values
• A dollar earned today is worth more than a
(potential) dollar earned next year

Sunday, M 41
(5) Economic Feasibility - Analyzing Cost vs Benefit
Do cost/benefit analysis
 Calculate Return on Investment:
• Allows comparison of lifetime profitability of
alternative solutions.
• ROI = (Total Profit/ Total Cost)
= (Lifetime benefits - Lifetime costs)/ Lifetime
costs
 Calculate Break-Even point:
• how long will it take (in years) to pay back the
accrued costs:
@T (Accrued Benefit > Accrued Cost)

Sunday, M 42
 (5) Economic Feasibility – Net Present Value
Present Value (PV)
• Today’s Value of Tomorrow’s earnings
• A dollar today is worth more than a dollar tomorrow.
The benefit to be realized sometime in the future is
reduced by the discount rate to determine its worth
today
• The discount rate measures opportunity cost: Money
invested in this project means money not available for
other things
This is company- and industry-specific: what is the
average annual return for investments in this inds
• It includes returns today + inflation in a period
 (5) Economic Feasibility – Net Present Value
Present Value (PV)

Present Value:
 “Current year” $ value for costs/benefits n years into the
future for a given discount rate i

Present Value(n) = 1/(1 + i)n

E.g. if the discount rate is 12%, then

 Present Value(1) = 1/(1 + 0.12)1 = 0.893
 Present Value(2) = 1/(1 + 0.12)2 = 0.797
 (5) Economic Feasibility – Net Present Value
• Net Present Value (NPV)
NPV is a method of calculating the expected net monitory
gain or loss from a project by discounting all future cash
inflows and outflows to the present point in time.
Positive NPV means return from the project exceeds the
cost of capital – the return available by investing the
capital elsewhere.
NOTE: (Depreciation and Non cash charges are NOT
REAL CASH OUTFLOWS and are not included in the
NPV calculations)
 (5) Economic Feasibility – Net Present Value

Start of Project
How to Calculate NPV? investment

(xx) Means cash outflow

Cash Year0 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9
Flow
Operational cash Flow= Revenue
Capital (800) (500) (200) - Operational Expense incl. TAX

Oper’nl (200) (150) (125) 50 200 400 500 800 1200 1500

Net (1000) (650) (325) 50 200 400 500 800 1200 1500

NPV (1000) +(650) +(325)+ 50 + 200 +400 + 500+ 800+1200+1500

1+r (1+r)2 (1+r)3 (1+r)9

46
 (5) Economic Feasibility – Net Present Value
Net Present Value Example
Should you invest $60,000 in a project that will return
$15,000 per year for five years? You have a minimum
return of 8% and expect inflation to hold steady at 3%
over the next five years.
The NPV
Year Net flow Discount NPV
column total
0 -$60,000 1.0000 -$60,000.00
is negative,
1 $15,000 0.9009 $13,513.51
so don’t
2 $15,000 0.8116 $12,174.34
invest!
3 $15,000 0.7312 $10,967.87
4 $15,000 0.6587 $9,880.96
5 $15,000 0.5935 $8,901.77
-$4,561.54
03
-
Copyright © 2013 Pearson Education 47
(5) Economic Feasibility – Net Present Value

Another Example: Proposal for a Fast-food outlet, 12% discounting

Now Yr1 Yr2 Yr3
Start-up costs 50K
Running costs 30K45K45K
Revenues 40K50K60K
Sale of Business 70K

NPV = NPVyr1 + NPVyr2 + NPVyr3

= - 50K + {(- 30K+ 40K)/(1+0.12)} + {(- 45K+ 50K)/(1+0.12)2} +
{(- 45K + 60K + 70K)/(1+0.12)3}
= - 50,000 + 8,928 + 3,696 + 60,501
= 23,415
If the criterion is NPV > 0, the project is worth pursuing.

48
(5) Economic Feasibility – Net Present Value

Sunday, M 49
(5) Economic Feasibility- BEP and Payback Period

Net Cash Flow

+ve

Cash
Flow years

-ve
Payback period is the time to recoup the total cost
invested in the project - when the cumulative benefits
50

become equal to the cumulative costs. It is when

accrued benefits to exceed the accrued and
continuing costs.
(5) Economic Feasibility- BEP and Payback Period

Sunday, M 51
(5) Economic Feasibility- BEP and Payback Period

Break-even point:
 when does lifetime benefits overtake lifetime
costs?
 Determine the fraction of a year when payback
actually occurs:
(beginningYr amt) / (endYr amt + beginningYr
amt)

In the example
51,611 / (70,501 + 51,611) = 0.42

Therefore, the payback period is approx 3.4 years

Sunday, M 52
(5) Economic Feasibility- BEP and Payback Period
Payback Period Example

A project requires an initial investment of $200,000

and will generate cash savings of $75,000 each year
for the next five years. What is the payback period?
Year Cash Flow Cumulative
0 ($200,000) ($200,000)
1 $75,000 ($125,000)
2 $75,000 ($50,000)
3 $75,000 $25,000
0
3
Pay back period = 2+50000/(50000+25000) =2.67 years
-
5
(5) Economic Feasibility- Data for ROI (next slide)

Sunday, M 54
(5) Eco Feasibility - Return on Investment (ROI)
ROI measures ratio of value of an investment to its cost.
ROI is calculated as follows:
(Est. lifetime benefits-Est lifetime costs)/ Est lifetime costs
or:
ROI = Net Present value / Estimated lifetime costs

For the example (See Previous Slide)

 ROI = (795,440 - 488,692) / 488,692 ≈ 63%,
 or ROI = 306,748 / 488,692 ≈ 63%

Sunday, M 55
(5) Eco Feasibility - Return on Investment (ROI)

Solution with the highest ROI is the best alternative

 But need to know payback period too to get the full
picture
E.g. A lower ROI with earlier payback may be
preferable in some circumstances

But if a Company specifies IRR (next section), then ROI

cannot be varied. Only Payback will decide the choice

Sunday, M 56
(5) Eco Feasibility - IRR

‘r’ is the Discount Rate that is used to calculate

PV/ NPV. This is basically the “cost of capital” or
“minimum rate of return acceptable for a given
risk”. This is mostly industry average, including
inflation
However, at times companies may specify their
own minimum acceptable returns they require
from a project. This may be more than ‘r’ the
industry average. This is called IRR and is used
for calculating NPV and Payback period

57
Options Models

NPV and IRR methods don’t account for failure to

make a positive return on investment. Options
models allow for this possibility.

Options models address:

1. Can the project be postponed?
2. Will future information help decide?

NOTE: We are NOT covering options models in

our course

03
-
58
 PROJECT MANAGEMENT

UNIT 2) PROJECT CHOICE:

2.3) estimating time/ cost/ resources;

Sunday, M 59
 Estimating Projects
• Estimating

• The process of forecasting or approximating the

time, resources and cost of completing project
deliverables.

• The task of balancing expectations of

stakeholders and need for control while the
project is implemented.
 Types of Costs
• Direct Costs • Special Case Costs
• Costs that are • “estimated costs”
clearly chargeable usually assigned to
to a specific work task that has been
package. done over and
• Indirect Costs over.
• Costs incurred that • Sunk Costs
are not directly tied • Those costs that
to an identifiable are unrecoverable.
project deliverable • Capital Costs
or work package. • Assets that have a
useful life, year or
more.
Why Estimating Time and Cost Are Important

• To support good decisions.

• To schedule work.
• To determine how long the project should take
and its cost.
• To determine whether the project is worth
doing.
• To develop cash flow needs.
• To determine how well the project is
progressing.
• To develop time-phased budgets and establish
the project baseline.
 Factors Influencing the Quality of Estimates

Planning
PlanningHorizon
Horizon

Other
Other Project
Project
(Nonproject)
(Nonproject) Duration
Duration
Factors
Factors

Quality
Qualityof
of
Organization
Organization Estimates
Culture
Estimates People
People
Culture

Padding
Padding Project
ProjectStructure
Structure
Estimates
Estimates and
andOrganization
Organization

5–63
 Estimating Guidelines for Times, Costs, and
Resources

1. Have people familiar with the tasks make the

estimate.
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient
methods, and a normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, don’t aggregate.
6. Don’t make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.

5–64
 Types of Estimates
• Order of Magnitude
• “seat of your pants” estimate with
very little thought or preparation
• Before it is stated, stress it is very
rough and limited in accuracy
• Budget Estimate
• More accurate and requires some
research
• Can use historical data
 Types of Estimates
• Definitive Estimate
• Most accurate
• Use the WBS completed and tested for accuracy
• Include contingency allowances – lump sum amt.
• Includes: training, testing, travel, monitoring, etc.
• Pro Forma Assessments
• Initial profile of project costs
• Can be order of magnitude, budget, or definitive
estimates
• Are refined until there is a particular level of
comfort
 Cost Estimating Approaches
• Bottom- up
• Most time consuming and most expensive
• Uses WBS where each task is estimated and
then added together as reverse upward.
• Tendency to “pad” as one goes
• Parametric Procedures Applied to Specific Tasks
• Using Industrial Engineering standards and
analysis
• Involves cost per sq. ft., linear foot, etc.
 Cost Estimating Approaches
Project
Estimate
• Macro (Top-down) Approaches Times
• Consensus methods Costs
• Expert judgment
• Apportion method
• Learning curves
 Refining Estimates

• Reasons for Adjusting Estimates

• Interaction costs are hidden in estimates.
• Normal conditions do not apply.
• Things go wrong on projects.
• Changes in project scope and plans.

• Adjusting Estimates
• Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.

69
 Estimate duration times
• Fairly certain if done before in other projects
• derive average duration from historical data
• Some projects books available containing mean
tables for typical activities
• Ask around
• When considering the time commitment to a
particular project, realistically, personnel (a
resource) has 80% of their personnel time
available, which is 4-6 hours of actual labor time
(sometimes one can only get 4-5 hrs per day)
while the rest of their time is involved with non-
project related issues.
RESOURCES
Estimate Resources

• Four categories of • Questions to ask?

resources
• Who and what are
• Money needed?
• Materials • Who and what can
• Machines do the work?
• People • Who and what are
available?
• What level and
competence is
required?
 Resource Planning
• The project manager decides which resources to
obtain, from what source, when to obtain them,
and how to use them.
• It’s a trade-off analysis between:
• 1. cost of alternative schedules designed to
accommodate resources shortages, and
• 2. cost of using alternative resources; for
example, overtime to meet a schedule or
subcontracting to accommodate a schedule
change.
• It is a continuous process that takes place
throughout the life cycle of the project. Aim is to
use minimum cost alternative
 Resource Availability
• Renewable resources are resources that are
available at the same level every time period. (e.g., a
fixed workforce)
• Depletable resources are resources that come in a
lump sum at the beginning of the project and are
used up over time, such as materials or computer
time on a super computer.
• Doubly constrained resources are resources
available in limited quantities each period. However,
their total availability throughout the project is also
circumscribed. The cash available for a project is a
typical example of a doubly constrained resource.
• Non-constrained resources are resources
available in unlimited quantities for a cost. A typical
example is untrained labor or general-purpose
equipment.
 Scheduling

• HEURISTICS (rule of thumb)

• As soon as possible
• As late as possible
• Shortest task time first - what takes the least
amount of time to do
• Most resources first - which needs the most
people, equipment, material to get done
• Minimum Slack first
• Most critical followers-the tasks that follow are
critical and must start on time or the project
will be delayed.
• Most successors
 PROJECT MANAGEMENT

UNIT 2) PROJECT CHOICE:

2.4) profitability evaluation

Sunday, M 76
Sunday, M 77
 Profitability Analysis
Number of factors are used to assess profitability
and hence make a project choice
• NPV Start of Profitability Analysis. Indicates
the current Value of future earnings. Uses
• Cash Flow Annual Cash Realisation to
indicate funding pattern which has its own
cost
• Breakeven Point When NPV is zero
• Payback Period The time for Breakeven after
which NPV is positive
• ROI Total Return on Investment at end of
Project life
• IRR Desired return which is same as desired
ROI. IRR is used instead of Discount Rate in
NPV calculations
 NPV Analysis Guideline
Estimate NPV State assumptions
Source of Value Why this Value
Estimate Risk Question the assumptions
Scenario Analysis ‘What if’ on assumptions
Sensitivity Analysis How NPV varies with
variation of specific variables
Simulation Analysis Describing probability
distribution of NPV, taking off from Scenario
Analysis
 Breakeven Analysis Guideline

• Accounting B E Sales Volume where net

income is 0
• Cash B E Sales Volume where operating cash
flow is 0
• Financial B E Sales Volume where NPV is 0
Q=Quantity, FC = Fixed Cost, D = Depriciation
P = Price, V = Variable Cost
81
 Comparing Alternatives
How do we compare alternatives?
When there are multiple selection criteria?
When none of the alternatives is superior across the
board?
Use a Feasibility Analysis Matrix!
 The columns correspond to the candidate solutions;
 The rows correspond to the feasibility criteria;
 Cells contain feasibility assessment notes for each
candidate;
 Each row can be assigned a rank or score for each
criterion
e.g., for operational feasibility, candidates can be
ranked 1, 2, 3, etc.
Sunday, M 82
 Comparing Alternatives
 A final ranking or score is recorded in the last
row.
Other evaluation criteria to include in the matrix
 quality of output
 ease of use
 vendor support
 cost of maintenance
 load on system

Sunday, M 83
 Example Matrix

Sunday, M 84