Section 3: Project Selection Criteria and Methods

Question 1

What Model Selection Criteria is described below?

• Accurately reflects the way the organization does business
• Appropriate for the level of resources, capabilities, and external environment of the organization

Answer 1

Realistic

Example: Using profitability model when the organization is focused on market share growth would not be appropriate.

Question 2

What Model Selection Criteria is described below?
* Uses factors that are relevant to the organization
* You would not expect one model to cover all dimensions of a project; you would want to use models that cover their dimension comprehensively.

Answer 2

Capable

Example: For organizations with a long-term value perspective, the net present value model provides a rigorous evaluation of a project’s future cash flows.

Question 3

What Model Selection Criteria is described below?
* The model should provide accurate measures across a reasonable range of conditions.

Answer 3

Flexible

Example: The model would allow for changing conditions where the cost of a new government regulation must be factored into the analysis.

Question 4

What Model Selection Criteria is described below?
* Provide results in a reasonable amount of time
* Results should be easily understood by the decision makers.

Answer 4

Easy to use

Example: Use models that provide measures that the decision maker can easily apply, such as dollars, months, or percentage change.

Question 5

What Model Selection Criteria is described below?
* The costs of gathering data and running the model should be low relative to the scale of the project.

Answer 5

Low cost

Example: A model that requires hiring a consultant to run and interpret may not be cost effective for smaller projects.

Question 6

What Model Selection Criteria is described below?
* The model should be usable across a range of projects such that the outcomes of the model can be used to compare projects.

Answer 6

Comparable

Example: Using a profitability model for one project and a qualitative scoring model for another would not allow the decision maker to analyze the projects relative to each other.

Question 7

Project selection models fall into two general categories: {blank} and {blank}.

Answer 7

1. non-numeric
2. numeric

Question 8

{Blank} project selection models can also be termed non-financial models because they focus on selection criteria that are not limited to traditional numeric performance measures (return on investment [ROI], profit, revenue, etc.).

Answer 8

Non-numeric

Question 9

What are some popular examples of non-numeric models?

Answer 9

• Competitive necessity
• Operating necessity
• Sacred cow

Question 10

Projects evaluated under the {blank} model still require a project proposal, which includes justification, cost, and time estimates, as well as documented outcomes. However, the decision of whether to approve or disapprove the project is based on whether implementing the project will ensure the viability of the company in the competitive market.

Answer 10

Competitive Necessity

Question 11

{Blank} evaluates a project based on whether it will ensure ongoing operations with the understanding that not executing the project will result in operations being interrupted.

Answer 11

Operating Necessity

Question 12

{Blank} projects are suggested by senior leadership or a powerful constituent of the company. These projects are often created to satisfy the expectations of the leader with little regard for the project’s viability or contribution to strategic or operational needs.

Answer 12

Sacred Cow

Question 13

{Blank} are a frequently used non-numeric method for project selection. This method uses a series of questions to evaluate each potential project. Each project would be analyzed using the same set of questions, and then the answers to the questions would be compared to determine whether a project is accepted or rejected.

Answer 13

Checklist models

Question 14

{Blank} project selection models use financial and other quantitative measures to drive decision-making. Although many companies focus on profitability measures, numeric models are not limited to a sole measure.

Answer 14

Numeric

Question 15

Numeric models can be grouped into two general categories. What are they?

Answer 15

1. profit/profitability based
2. scoring models

Question 16

{Blank} based models use some aspect of measuring the financial returns of the project relative to the cost of the project or the time required to break-even. These models include payback period, net present value, and internal rate of return.

Answer 16

Profit/profitability

Question 17

{Blank} models allow the company to integrate multiple criteria in analyzing project proposals. These types span from basic scored criteria to including weights on each criteria so that some criteria are emphasized over others.

Answer 17

Scoring

Question 18

{Blank} calculates the amount of time required to earn back the cost of doing the project.

Answer 18

Payback period

Question 19

What is the formula of payback period in months?

Answer 19

Payback Period (months) equals Estimated Project Cost divided by Monthly Return

Question 20

What is the formula of payback period annually?

Answer 20

Payback Period (annual) equals Cost divided by Savings