Chapter 3 Flashcards
What is a project screening and what characteristics make it effective?
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
What are some of the issues with screening and selection?
- Risk – unpredictability to the firm
a. Technical
b. Financial
c. Safety
d. Quality
e. Legal exposure - Commercial – market potential
a. Expected return on investment
b. Payback period
c. Potential market share
d. Long-term market dominance
e. Initial cash outlay
f. Ability to generate future business/new markets - Internal operating – changes in firm operations
a. Need to develop/train employees
b. Change in workforce size or composition
c. Change in physical environment
d. Change in manufacturing or service operations - Additional
a. Patent protection
b. Impact on company’s image
c. Strategic fit
All models only partially reflect reality and have
both objective and subjective factors embedded.
What are different approaches to project screening?
Checklist model
Simplified scoring models
Analytic hierarchy process
Profile models
Describe the checklist method?
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 stimulating discussion.
Describe simplified scoring method?
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!
Describe analytics 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. Determine scores by summing the products of numeric evaluations and weights.
Unlike the simple scoring model, these
scores can be compared!
Describe profile method?
Profile models allow managers to plot risk/return options for various alternatives and then select
the project that maximises return while staying within a certain range of minimum acceptable risk.
Project X 6 offers the most potential return, it does so at the highest level of risk.
The profile model makes use of the efficient frontier. It is the set
of project portfolio options that offers either a maximum return for every given level of risk or the
minimum risk for every level of return.
What are the financial model for project selection?
Payback period Net present value Discounted payback period Internal rate of return Options models
Describe payback period method?
Determines how long it takes for a project
to reach a breakeven point
Payback period = Investment/Annual Cash Savings
Cash flows should be discounted.
Lower numbers are better (faster payback).
Describe project portfolio management?
The systematic process of selecting, supporting, and managing the firm’s collection of projects. Portfolio management objectives and initiatives require: decision making prioritization review realignment reprioritization of a firm’s projects
Describe Project Portfolio Matrix?
Low NPV/ Low Probability of Success: White elephant
Low NPV / Hiogh P: Bread and Butter
High NPV/ low P: Oysters
High NPV/ high p: Pearls.
What are keys to successful project portfolio management?
Flexible structure and freedom of
communication
Low-cost environmental scanning
Time-paced transition
What are some problems with implementing portfolio management?
Conservative technical communities
Out-of-sync projects and portfolios
Unpromising projects
Scarce resources
