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Project Selection Models for Project Managers:

Essay by   •  December 11, 2013  •  Study Guide  •  372 Words (2 Pages)  •  1,982 Views

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There are two general project selection models: numeric model and nonnumeric model.

Non-numeric models don't deal with numbers as inputs. It is a subjective take on evaluating the projects, or in other words justifying them.

Numeric or profitability models include standard forms such a: payback period, average rate of return, DCF, IRR, profitability index, etc.

These two general models and their subtypes are as follows:

* Nonnumeric Models

* Sacred Cow

* Operating Necessity

* Competitive Necessity

* Comparative Benefit

* Numeric Models:

General limitations to the project selection models:

- Models generally assume that the process of decision making is free of any political charge from people with power in the institution, which does not always hold true.

In the sacred cow model for example, the project come about from a simple personal idea of a person in power, without regards to the success potential of the project. Such a suggestion might have been a result of an instinctive decision, or a political one. Either way this model involves a great deal of risk.

- Projects that are selected based on competitive necessity sometimes are sometimes undertaken solely for the purpose of catching-up and adapting to changes and competition, or creating an entrance barrier for competitors in the markets with unmet demand. These projects sometimes can't be justified for any other reason, and may bear a considerable amount of risk to the organization.

- Some organizations lack a formal project selection method, in which they depend on a comparative method. Senior management decide to take on projects that seem more beneficial or in-line with the companies objectives or line of work - in which case by involving the human decision factor, without a scientific research or justification, the organization runs the risk of involving bias an failing on the quantifiable benefit delivery.

- On the other end of the spectrum some organizations make decisions through a solely objective process, based on algorithmic calculations with minimal human involvement. These organizations run the risk of selecting projects that do not aligned with the company's goals and values, or are outside of their area of specialty.

- Some of the general limitations to the selection of projects using numeric models are due to uncertainty of: actual costs and benefits; timing, achievable scope, and side-effects; accuracy of pro-forma documents; limitation

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