Page 43 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes Before examining specific kinds of models within the two basic types, let us consider just what
we wish the model to do for us, never forgetting two critically important, but often overlooked
facts.
 Models do not make decisions—people do. The manager, not the model, bears
responsibility for the decision. The manager may “delegate” the task of making the decision
to a model, but the responsibility cannot be abdicated.
 All models, however sophisticated, are only partial representations of the reality they are
meant to reflect. Reality is far too complex for us to capture more than a small fraction of
it in any model. Therefore, no model can yield an optimal decision except within its own,
possibly inadequate, framework.
We seek a model to assist us in making project selection decisions. This model should possess
the characteristics discussed previously and, above all, it should evaluate potential projects by
the degree to which they will meet the firm’s objectives. To construct a selection/evaluation
model, therefore, it is necessary to develop a list of the firm’s objectives.

A list of objectives should be generated by the organisation’s top management. It is a direct
expression of organisational philosophy and policy. The list should go beyond the typical
clichés about “survival” and “maximising profits,” which are certainly real goals but are just as
certainly not the only goals of the firm. Other objectives might include maintenance of share of
specific markets, development of an improved image with specific clients or competitors,
expansion into a new line of business, decrease in sensitivity to business cycles, maintenance of
employment for specific categories of workers, and maintenance of system loading at or above
some percent of capacity, just to mention a few.
A model of some sort is implied by any conscious decision. The choice between two or more
alternative courses of action requires reference to some objective(s), and the choice is thus, made
in accord with some, possibly subjective, “model.” Since the development of computers and the
establishment of operations research as a subject in the mid-1950s, the use of formal, numeric
models to assist in decision making has expanded. Many of these models use financial metrics
such as profits and/or cash flow to measure the “correctness” of a managerial decision. Project
selection decisions are no exception, being based primarily on the degree to which the financial
goals of the organisation are met. As we will see later, this stress on financial goals, largely to
the exclusion of other criteria, raises some serious problems for the firm, irrespective of whether
the firm is for profit or not-for-profit.
When the list of objectives has been developed, an additional refinement is recommended. The
elements in the list should be weighted. Each item is added to the list because it represents a
contribution to the success of the organisation, but each item does not make an equal contribution.
The weights reflect different degrees of contribution each element makes in accomplishing a set
of goals.
Once the list of goals has been developed, one more task remains. The probable contribution of
each project to each of the goals should be estimated. A project is selected or rejected because it
is predicted to have certain outcomes if implemented.

These outcomes are expected to contribute to goal achievement. If the estimated level of goal
achievement is sufficiently large, the project is selected. If not, it is rejected. The relationship
between the projects expected results and the organisation’s goals must be understood. In general,
the kinds of information required to evaluate a project can be listed under production, marketing,
financial, personnel, administrative, and other such categories.
Some factors in this list have a one-time impact and some recur. Some are difficult to estimate
and may be subject to considerable error. For these, it is helpful to identify a range of uncertainty.
In addition, the factors may occur at different times. And some factors may have thresholds,

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