Nonnumeric Models of Project Selection

Characteristics of a Good Project Selection Model

• Should be simple and suitable for collecting and accumulating information in a computer database
• Should be able to maneuver data using commonly accessible, standard computer package programs

Numeric Models of Project Selection

• Payback Period: measures the time it takes to recover the project investment; a shorter payback period is better
• Internal Rate of Return (IRR): the discount rate that equates the present value of future cash flows of an investment with the initial investment
• Net Present Value: a numeric calculation that shows the present value of an investment based on expected income from that investment in future years minus the cost of the project
• Benefit-Cost Ratio: the ratio of the present value of cash inflows, at the required rate of return, to the initial cash outflow of the investment

Non-Numeric Models of Project Selection

• Sacred Cow: a project recommended by a senior and influential official in the organization
• Operating Necessity: a project that is obligatory to keep the system operating; does not necessitate a great extent of a formal evaluation
• Competitive Necessity: a project that is chosen to preserve the company's competitive position in that market
• Product Line Extension: a project to develop and distribute new products evaluated on the level to which it fits the firm's present product line
• Comparative Benefit Model: often used to select from a list of projects that are complex, difficult to assess, and often non-comparable

Model Requirements

Realism

• Should mirror the reality of the manager's decision situation together with the various objectives of both the firm and its managers
• Should take into consideration the realities of the firm's limitations on facilities, capital, human resources, technology, and so forth

Capability

• Should be complicated enough to deal with numerous time periods, simulate different situations both inside and external to the project, and optimize the decision
• Should formulate assessments through an optimizing model

Flexibility

• Should offer convincing outcomes among the conditions that the firm may experience
• Should have the ability to be effortlessly modified or to be self-adjusting in answer to changes in the firm's environment

Ease of Use

• Should be realistically convenient, not require a long time to carry out, and be simply to employ and comprehend
• Should not need out of the ordinary explanation

Cost

• Data gathering and modeling costs should be low in relation to the cost of the project and must certainly be less than the probable benefits of the project

This quiz covers different nonnumeric models of project selection including sacred cow, operating necessity, competitive necessity, and product line extension. Each model represents a unique approach to selecting projects within an organization based on various criteria.