ameen

Topics: Net present value, Cash flow, Discounted cash flow Pages: 4 (409 words) Published: October 10, 2013
WEEK 2

Project Selection:

1.Aligning strategy with projects
2.Project investment criteria
3.Functional assessment

Production
Marketing
Financial
Human resources
Administration

Selection Models:

Selection (or 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

Project Screening & Selection Issues:

Risk – unpredictability to the firm
Commercial – market potential
Internal operating – changes in firm operations
Additional – image, patent, fit, etc.

All models only partially reflect reality and have both objective and subjective factors embedded.

Project Selection Methods:

Non-numeric Models:

1.Sacred cow
2.Operating necessity
3.Competitive necessity
4.Product extension
5.Comparative benefit
6.Checklist
7.Simplified Scoring Models
8.Analytical Hierarchical Process

1. Checklist Model:

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 encouraging discussion

Drawback:
Does not allow comparison with other potential projects

2. Simplified Scoring Models:

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

Score = sigma ( Weight x Score )

3. Analytical Hierarchy Process:

The AHP is a four-step process:

1.Construct a hierarchy of criteria and sub criteria
2.Allocate weights to criteria
3.Assign numerical values to evaluation dimensions
4.Scores determined by summing the products of numeric evaluations and weights

Profile Models :

Show risk/return...
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