Project selection methods

There can be several possible projects to initiated in the organization. However, it is not possible to execute every possible project in an organization. This is mainly because of budget and time constrains. Because executing every project will cost a lot, in other hand, even if the budget constrain is overcome, it will be impossible to complete several projects to the market competition, etc. therefore, organization evaluate different possible projects before initiating and decide which project to initiate, respectively.

Project manager must know why their project was selected and how it fits into the organization’s strategic plan, because during planning this is important to plan project activities to meet the project objectives once the project is completed.

There are two common approaches for project selection:

- Benefit measurement methods ( comparative approach)

- Constrained optimization methods (mathematical approach)

Comparative approach evaluate several projects based on benefits, profits, revenue, etc. and optimate projects are authorized, respectively. In other hand, mathematical approach takes many inputs about the project, and these are module mathematically, usual by help of software programs, and these programs outline possible outputs of the project mathematically.

- Benefit measurement method

Have 4 types of modules, these are:

1- Murder Board (a panel of people who try to shoot down a new project)

Participants in a panel try to clean negative aspects that will come with the implementation of the project based on the results of the panel., if the project can defend these negative aspects, these will be selected for imitating.

2- Peer Review.

This method is used to evaluate projects based on perspective of a similar people in an organization.

3- Scoring Models.

These models scoring candidate the projects for each predetermine category. Projects with higher scores are evaluated for initiating.

4- Economic Models.

Economic models are important because this is the most common approach used by many companies for project selection.

- Constrained optimization methods.

Have 4 models and these are:

• Liner Programming.
• Integer Programming.
• Dynamic Programming.
• Multi-objective programming.

Now, we will go through in details different types of economic models for project selection:

1- Present Value.

This give us todays value of the money that will be paid or received in future.

2- Net Present Value.

This give us todays value of sum of all transaction inbound and outbound that will happen in future.

3- Internal rate of return.

This give us how much percentage of investments will tern back as revenue in future.

4- Payback Period.

This give a duration that a project will cover the money invested with its revenues.

5- Benefit-cost ratio.

This ratio give us whether benefits of the project are higher than a cost.

In next articles, we will be going throughout these economic one by one in details.