1 / 12

Project Selection

Project Selection. I. Project Selection: Non-Numeric Models. Sacred Cow Operating Necessity Competitive Necessity Product Line Extension Comparative Benefit

alana-huff
Download Presentation

Project Selection

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Project Selection

  2. I. Project Selection: Non-Numeric Models • Sacred Cow • Operating Necessity • Competitive Necessity • Product Line Extension • Comparative Benefit (E.g. Q-SORT: Projects are Divided into Rated Groups. If a Group Has More than Eight Members, It is Divided into Two Groups. Then Projects within Groups are Ranked).

  3. II. Project Selection: Numeric Models • Payback Period Initial Fixed Investment / Annual Cash Inflow E.g. $10,000 / $2000 = 5 Years • Mean Rate of Return Annual Return / Initial Investment E.g. $3,000 / $10,000 = 0.30

  4. II. Project Selection: Numeric Models • Present Value (Discounted Cash Flow) 1. In One Year: (Net Present Value)(1+k) = (Future Value) Where k is Interest Rate E.g. ($10,000 or NPV) (1.1) = $11,000 = F 2. In t Years: NPV (1+k)t = F E.g. ($10,000) (1.1) (1.1) = $12,100

  5. II. Project Selection: Numeric Models • Present Value (Discounted Cash Flow) 3. Solving for NPV: NPV = F / (1+k)t E.g. NPV = $12,100 / 1.21 = $10,000 4. If You Have F’s in Different Years (or Periods) NPV = -A0 + [F1/(1+k)1] + [F2/(1+k)2] + Etc. NPV = -$7,000+($5,000/1.1)+($5,000/1.21) NPV = $1,677.68

  6. II. Project Selection: Numeric Models • Profitability Index (Cost-Benefit) Index = NPV / Initial Investment (A0) E.g. Index = $1,677.68 / $7000.00 = 0.24

  7. II. Project Selection: Numeric Models • Scoring Methods 1. Unweighted 0-1 Factor 2. Unweighted Factor Scoring Example – Project A Qualify No Qualify S Environmental Impact x 8 Need for Consultants x 3 Impact on Image x 7 Totals 2 1 18

  8. II. Project Selection: Numeric Models • Scoring Methods 3. Weighted Factor Scoring For Each Project i: Si = Si1W1 + Si2W2 + Si3W3 + Etc. E.g. S1 = (10)(0.5) + (10)(0.3) + (5)(0.2) = 9 Select Projects with Highest Scores (Si’s)

  9. II. Project Selection: Numeric Models • Scoring Methods 4. Linear (Integer) Programming Maximize Z = S1X1 + S2X2 + S3X3 + Etc. Subject to: m1X1 + m2X2+ Etc.  M Xi = 0 or 1 E.g. Max. Z = 10 X1 + 10X2 + 5X3 s.t. 2X1 + 5X2+ 3X3 7 Workers X1,X2,X3 = 0 or 1

  10. II. Project Selection: Numeric Models • Analysis of Projects Under Uncertainty • Primary Source of Uncertainty: Time and Cost • We Can Use Monte Carlo Simulation • Computer Can Generate Typical (E.g. Normally Distributed) Activity Times and Costs. After 1000’s of Runs a Cost Probability Distribution Can be Generated for Each Proposed Project. Probability Cost.3 $1000 .4 2000 .3 3000

  11. Summary Numeric Methods Can Assist in: • Project Selection • Bidding through Cost Estimation and ComputerSoftware Such as Quickest (Constructive Computing)

More Related