PROJ6000 Principles Of Project Management

Answer :

Methods Of Project Selection 

The methods of project selection provides a set of time-tested techniques that are based on appropriate reasoning for choosing a project and tittering the unwanted projects with minimal chances of success. The methods of project selection can be classified in two sections: 

Constrained Optimisation Methods 

These methods are commonly referred as the mathematical model of project selection and these methods are utilised in larger projects, which requires comprehensive and complex mathematical calculations (Dutra, Ribeiro and de Carvalho 2014). The techniques that can be utilised are as follows: 

Project selection with linear programming method: Within this method, the cost of the project is reduced by reducing the project duration. Any activity can be executed in the normal time or the crash time. The activity time of the project can be reduced by the analysis of the crash time. 

Project selection with the integer programming method: With the help of this method, the decision is taken after analysis of the integer values rather than the fractional values (Burke 2013). 

Project selection with method of dynamic programming: The breakdown of any complex problem into sequential easier problem can be done with the help of this method. This method offers a common structure for analyzing several types of problems. Within this framework, several kinds of techniques of optimization can be utilized for solving a particular aspect of a problem (Bolon-Canedo, Sanchez-Marotio, and Alonso-Betanzos 2013). In this method, there is a requirement for creativity prior to making decisions about whether the problem requires dynamic programming for the solution of the problem. 

The multi-objective programming method of selection: with the help of this method, the decisions for several problems can be taken with the help of mathematical optimization. In this case, within any multi-objective programming, not all the problems can be optimized with a single solution, which leads to the situation of conflict and the probability of multiple optimal solutions. Any solution will be referred to as non-dominated when the optimization of none of the values can be done without 

 the degradation of the values of another problem (Velasquez and Hester 2013). 

Benefit Measurement Methods 

The method of benefit measurement is the technique of project selection that is based on the current value of the estimated outflow of cash and the inflow. The calculation of cost benefit is conducted and then the comparison is conducted with several other projects for making a decision. The methods that are commonly utilised for the measurement of benefit are: 

Ratio of cost/benefit: the cost/benefit ratio is referred as the ratio among the current inflow value or invested cost involved in project to the current value of outflow that is the return value that is obtained from the project. The projects which provides greater ratio of cost benefit or the lower ratio of cost benefit are commonly selected (Bolon-Canedo et al. 2014). 

Economic model: Economic value added or the EVA is the metric of performance, which calculates the worth-creation of an organisation even though it is defining the return that is obtained on the capital. It can be also referred as the overall profit afterwards deducting the taxes and the capital expenditure. If the project manager is handling several projects, the project that provides the maximum economic value is selected. The expression of the EVA is always done in the form of numerical expression and it is never done in the form of a percentage. 

Scoring model: this is an objective technique, which means the committee of project selection lists all the appropriate criteria, weighs the criteria according to the priorities and the importance and then increases the weighted values (Kaiser, El Arbi, and Ahlemann 2015). 

Payback period: this is referred as the ratio of sum total cash to the average per period cash. This is the required time, which is required for recovering the capital that is financed in the project. This method is the most common method of project selection. As the name indicates, the payback period of an investment is taken into consideration in the payback period. This is the time period that is needed for the return on the investment for repaying the initial invested cost (Wang et al. 2013). 

When the period of payback is utilised as the method of project selection, the project with the shortest period of payback is chosen as the organisation can restore the initial investment easily. The limitations to this method are: 

• The time value of money is not considered in this method 

• The benefits that are obtained afterwards the period of payback are not measured; the focus is increased on the liquidity while there is a neglecting tendency of the profitability (spoiaoR et al. 2013). 

• The risks that are included in the distinct projects are ignored. 

net present value This is the alteration among the current project value of the inflow of cash and the present value of cash outflow. NPV should always be positive. The projects with higher net present value is preferred when there is a need of selecting a project. The characteristic of the NPV of considering the future money value makes NPV advantageous over payback period (Ur, Hamurcu and Eren 2016). The limitations of NPV are: 

• There is no common technique for deriving the discount value that is utilised for the calculation of the current value. 

• NPV does not offer any kind of vision in the loss or the profit for an organisation when the organisation is investing in a project. 

Internal return rate: The internal return rate is the rate of interest at which the NPV attained at zero when the current outflow value is equivalent to the current inflow value. Internal return rate is denoted as the annualised operative compounded Rate of Return or the rate of discount that creates the NPV of the flow of cash that is obtained from a specific investment equivalent to zero. The IRR is utilised for the selection of the project consisting the best effectiveness; when there is a requirement of selection of a project, the projects with the highest IRR is selected (Khalili-Damghani, Sadi-Nezhad and Tavana 2013).