Project Selection Methods Quiz

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Questions and Answers

What does the Payback Period metric determine?

The total investment needed for the project

The overall success of a project

The likelihood of future cash flows

How quickly a project recoups its costs (correct)

In a weighted selection method, why is it important to assign a numeric weight to each criterion?

To ensure all criteria are viewed equally

To simplify the scoring process

To prioritize certain factors over others (correct)

To evaluate the projects without bias

Which selection tool uniquely estimates the current worth of anticipated cash flows?

Payback Period

ROI

Net Present Value (correct)

Unweighted Selection

When using unweighted criteria, how are the project scores typically derived?

By scoring against a set of selection criteria without weight differences Signup and view all the answers

What is the main purpose of calculating ROI in project evaluation?

To quantify the return expected from an investment Signup and view all the answers

Which project has the higher Return on Investment (ROI)?

Inhouse Development Signup and view all the answers

What is the calculation used to determine Net Present Value (NPV)?

Discounted benefits – discounted costs Signup and view all the answers

How much is the NPV for Outsourced Development?

-$163,000 Signup and view all the answers

What is the Payback Period for Inhouse Development?

Year 1 Signup and view all the answers

Which project's NPV indicates a more favorable investment outcome?

Inhouse Development Signup and view all the answers

What is the purpose of calculating the Payback Period in project evaluation?

To determine when costs are recovered Signup and view all the answers

What are the total benefits from Inhouse Development in Year 2?

$2,500,000 Signup and view all the answers

Which calculation best describes how the PV of costs for Outsourced Development is derived?

Costs × 1.0 Signup and view all the answers

What is the primary purpose of the project charter?

To authorize the existence of the project Signup and view all the answers

Which process is NOT part of the Initiating Process Group?

Perform Qualitative Risk Analysis Signup and view all the answers

Who provides the project manager with the authority to apply organizational resources to project activities?

The project sponsor Signup and view all the answers

What is the first step in Project Procurement Management?

Plan Procurement Management Signup and view all the answers

Identify the knowledge area associated with identifying stakeholders.

Stakeholder Management Signup and view all the answers

What is the first step in Project Scope Management?

Plan Scope Management Signup and view all the answers

Which process involves controlling project work?

Monitor and Control Project Work Signup and view all the answers

In Project Time Management, what is the purpose of the 'Define Activities' process?

To break down the work packages into manageable activities Signup and view all the answers

What is the final process in Cost Management?

Control Costs Signup and view all the answers

Which of the following is not part of Project Quality Management?

Develop Quality Standards Signup and view all the answers

What is the main objective of the 'Manage Team' process in Project Resource Management?

Ensure effective work and performance from team members Signup and view all the answers

Which process ensures communication is effectively managed throughout the project?

Manage Communications Signup and view all the answers

What does the 'Perform Integrated Change Control' process involve?

Reviewing and approving project changes Signup and view all the answers

What is the primary purpose of a business case in project selection?

To provide justification for investing in a project Signup and view all the answers

Which of the following is NOT a common reason for embarking on a project?

To fulfill a personal ambition Signup and view all the answers

Which component is essential for understanding the current project's status and justifications?

Current situation and problem/opportunity statement Signup and view all the answers

What type of constraints may limit a project due to budget issues?

Resource limitations Signup and view all the answers

What are assumptions in the context of project management?

Factors considered true without proof Signup and view all the answers

Which of the following represents a common technical constraint?

Compatibility with specific hardware Signup and view all the answers

What is the role of the Project Charter in the initiating process group?

To formally authorize a project or phase Signup and view all the answers

Which of the following scenarios indicates a common constraint in project management?

Application software must be compatible with Linux. Signup and view all the answers

Study Notes

Selection Tools Overview

Payback Period: Measures how quickly a project recovers its initial costs.
Net Present Value (NPV): Calculates the current worth of expected cash flows from the project, factoring in a discount rate.
Return on Investment (ROI): Assesses the profitability of an investment relative to its cost.
Unweighted Selection: Scores projects uniformly against criteria, treating each equally.
Weighted Selection: Scores projects against criteria with specific weights indicating their importance.

Unweighted and Weighted Criteria Examples

Unweighted scores can vary for projects based on specific factors like ROI and service improvement, typically scaled from 1 to 5.
Weighted criteria incorporate varying importance for different factors, influencing the overall evaluation of each project option.

ROI Calculation Example

Outsourced Development: Year 0 costs of $2,500,000; Year 1 benefits of $1,200,000; Year 2 benefits of $1,500,000 results in an ROI of 8%.
In-house Development: Year 0 costs of $1,400,000; Year 1 benefits of $1,600,000; Year 2 benefits of $2,500,000 results in an ROI of 193%.
Conclusion: In-house development is favorable due to higher ROI.

NPV Calculation Example

Discount Rate: 10%.
Outsourced Development: NPV calculation yields -$163,000.
In-house Development: NPV calculation yields $2,131,000.
Conclusion: In-house development is preferred based on higher NPV.

Payback Period Calculation Example

Outsourced Development: Cost recovery occurs at Year 2.
In-house Development: Cost recovery occurs at Year 1.
Conclusion: Choose in-house development for quicker payback.

Business Case Fundamentals

Purpose: Justifies investment in a project.
Reasons for Projects: Address business problems, seize opportunities, or fulfill directives.

Components of a Business Case

Background and objectives, current situation, assumptions, constraints, budget estimates, and preliminary schedules.

Project Constraints

Types: Budget limitations, time restrictions, resource skill limitations.
Technical Constraints: Development languages, infrastructure compatibility.

Assumptions in Projects

Assumptions are treated as truths without verification but present risks if proven false.
Examples: Staff roles remaining unchanged, cross-training among dedicated staff, collaboration from business teams in testing.

Initiating Process Group

Defines new projects or phases and secures authorization to start.
Key processes: Develop Project Charter and Identify Stakeholders.

Project Charter

A formal document that authorizes a project and grants the project manager authority to utilize organizational resources.

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Description

Test your knowledge on various project selection tools and methods such as Payback Period, Net Present Value, and ROI. This quiz covers key concepts essential for evaluating project feasibility and returns. Perfect for students and professionals in project management.