PROJECT SELECTION

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 OBJECTIVES
 UNDERSTAND DIFFERENCE BETWEEN PROJECT, PROGRAM
& PORTFOLIO.

 TYPE OF PROJECT

 THE PROJECT LIFE CYCLE

 CHARACTERISTICS OF PROJECT

 PROJECT SELECTION CRITERIA

 TYPES OF PROJECT SELECTION MODELS

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 INTRODUCTION
• Project selection is the process of Evaluating individual or
groups of projects, and then choosing to implement some
set of them so that the objectives of the parent
organization will be achieved.
• A Project is a combination of human and non-human
resources pooled together in a temporary organization to
achieve a specific purpose.

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 PROGRAM
• A Program is a group of related projects designed
to accomplish a common goal over an extended
period of time
• Each project within a program has a Project
manager
• The major difference lies in scale
and time span.

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 PORTFOLIO
• A collection of projects and programs that are grouped
together for pursuing objectives focused on some specific
business strategy.
• The scope of Portfolio is wider than Project or programs.
• The portfolio of diversified large companies may include
projects and programs in the wide spectrum.
• Portfolio management is handled at the
highest managerial level.

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 TYPES OF PROJECT
1. On the basis of Product versus nature of work
• Tangible
• Intangible
• Craft work
• Intellect
2. On the basis of Application areas
• Construction type projects
• Research projects
• Reengineering project
• Procurement projects
• Business implementation
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 THE PROJECT LIFE CYCLE:

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 CHARACTERISTICS OF PROJECT
• Objectives
• Life cycle
• Uniqueness
• Team Work
• Complexity
• Risk and uncertainty
• Customer specific nature
• Change
• Optimality
• Sub-contracting
• Unity in diversity
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 PROJECT SELECTION Criteria
• REALISM: Reality’s of manager decision

• CAPABILITY: Able to stimulate different scenarios and optimize the decision

• FLEXIBILITY: Provide valid results within the range of condition

• EASE OF USE: Reasonably convenient, easy execution easily understood

• COST: Data gathering and modelling costs should be low relative to the cost of the
project

• EASY COMPUTERIZATION: Must be easy and convenient to gather store and

manipulate data in the model
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TYPES OF PROJECT SELECTION
MODELS
a) FINANCIAL/ NUMERIC CRITERIA

b) NON FINANCIAL/NON NUMERIC CRITERIA

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 A) FINANCIAL/ NUMERIC CRITERIA
 PAYBACK PERIOD
• Measures time it will takes to recover the project investment.
• Shorter paybacks are more desirable.
• It ignores the time value of money, assumes cash flows for investment
period and doesn’t consider profitability.

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 RETURN ON INVESTMENT (ROI)

• It is a financial ratio that uses net profit from an investment as a measure for
project selection.
• ROI is a measure of profitability it does not use discounted cash flows. ROI is a
measure of profitability it does not use discounted cash flows.
• Evaluate the efficiency of an investment or to compare the efficiency of a number
different investments.

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 NET PRESENT VALUE :
• NPV is the difference between the present value of cash inflows (income or
revenue) and the present value of cash outflows(cost or expense).
• NPV is used in capital budgeting to analyse profitability of a projected
investment or project.

Ct = net cash inflow during the period t

Co = total initial investment costs
r = discount rate (or interest rate)
t = number of time periods

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 INTERNAL RATE OF RETURN
• IRR is the rate of discounting (used to reduce future cash flows to their
present value) at which the present value of costs match the present
value of benefits.
• Discounting method, but in this assuming a fixed discount rate, the
discount rate is varied till net value becomes zero
• Discount rate at which net present value become zero known as IRR
• Projects with highest IRR would considered as the best

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 ACCOUNTING RATE OF RETURN
• Also known as Average Rate of Return, or Simple Rate of Return or ARR is a
financial ratio used in capital budgeting.
• The ratio does not take into account the concept of time value of meaning.
• Average net income an asset is expected to generate divided by its average
capital cost, expressed as an annual percentage.

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 COST BENEFIT ANALYSIS
• Sometimes called benefit- cost analysis(BCA)
• Estimate strengths & weakness of alternatives that satisfy transactions,
activities functional requirement of business.
• To determine options that provide best approach for adoption and practice in
terms of benefits in labour time & cost savings

CBA = Sum of Present Value of future cash Inflow / Project Cash

outflow

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 NON FINANCIAL/NON NUMERIC
CRITERIA
• SACRED COW: Project is suggested by a senior and powerful official in the organisation.

• OPERATING NECESSITY: Project is required to keep the system running

• COMPETITIVE NECESSITY: Project is necessary to sustain a competitive position

• PRODUCT LINE EXTENTION: Projects are judged on how they fit with current product
line, fill a gap, strengthens a weak link, or extend the line in a new desirable way.

• COMPARATIVE BENEFIT MODEL: Several projects are considered and the one with
the most benefit to the firm is selected.

• CHECKLIST MODELS: This approach basically uses a list of questions to review

potential projects & to determine their acceptance or rejection
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