Page 42 - DMGT521_PROJECT_MANAGEMENT

Unit 3: Strategic Management and Project Selection

Cost-benefit analysis is used by several organisations to assist them to make their selections. Notes
Going by this method, you would have to consider all the positive aspects of the project, which
is the benefits, and then deduct the negative aspects (or the costs) from the benefits. Based on the
results you receive for different projects, you could choose which option would be the most
viable and financially rewarding.
These benefits and costs need to be carefully considered and quantified in order to arrive at a
proper conclusion. Questions that you may want to consider asking are in the selection process
are:
1. Would this decision help me to increase organisational value in the long run?
2. How long will the equipment last for?

3. Would I be able to cut down on costs as I go along?
In addition to these methods, you could also consider Choosing based on opportunity cost -
When choosing any project, you would need to keep in mind the profits that you would make if
you do decide to go ahead with the project.
Profit optimisation is therefore the ultimate goal. You need to consider the difference between
the profits of the project you are primarily interested in, and the next best alternative.

3.2.2 Implementation of the Chosen Method

The methods mentioned above can be carried out in various combinations. It is best that you try
out different methods, as in this way you would be able to make the best decision for your
organisation considering a wide range of factors rather than concentrating on just a few. Careful
consideration would therefore need to be given to each project.

Task Discuss Selection Models.

3.3 Nature of Project Selection Models

The Nature of models is as follows:
1. Models turn inputs into outputs

2. Managers decide on the values for the inputs and evaluate the outputs
3. The inputs never fully describe the situation
4. The outputs never fully describe the expected results
5. Models are tools

6. Managers are the decision makers
There are two basic types of project selection models, numeric and non-numeric. Both are
widely used. Many organisations use both at the same time, or they use models that are
combinations of the two. Non-numeric models, as the name implies, do not use numbers as
inputs. Numeric models do, but the criteria being measured may be either objective or subjective.
It is important to remember that the qualities of a project may be represented by numbers, and
that subjective measures are not necessarily less useful or reliable than objective measures.

LOVELY PROFESSIONAL UNIVERSITY 37