Page 45 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes 8. A project is selected or rejected because it is predicted to have certain outcomes if
…………………

3.4 Types of Project Selection Models

Of the two basic types of selection models (numeric and non-numeric), non-numeric models are
older and simpler and have only a few subtypes to consider. We examine them first.

3.4.1 Non-Numeric Models

These include the following:
1. The Sacred Cow: In this case the project is suggested by a senior and powerful official in
the organisation. Often the project is initiated with a simple comment such as, “If you have
a chance, why don’t you look into . . .,” and there follows an undeveloped idea for a new
product, for the development of a new market, for the design and adoption of a global
database and information system, or for some other project requiring an investment of
the firm’s resources. The immediate result of this bland statement is the creation of a
“project” to investigate whatever the boss has suggested. The project is “sacred” in the
sense that it will be maintained until successfully concluded, or until the boss, personally,
recognises the idea as a failure and terminates it.

2. The Operating Necessity: If a flood is threatening the plant, a project to build a protective
dike does not require much formal evaluation, which is an example of this scenario. XYZ
Steel Corporation has used this criterion (and the following criterion also) in evaluating
potential projects. If the project is required in order to keep the system operating, the
primary question becomes: Is the system worth saving at the estimated cost of the project?
If the answer is yes, project costs will be examined to make sure they are kept as low as is
consistent with project success, but the project will be funded.
3. The Competitive Necessity: Using this criterion, XYZ Steel undertook a major plant
rebuilding project in the late 1960s in its steel bar manufacturing facilities near Chicago. It
had become apparent to XYZ’s management that the company’s bar mill needed
modernisation if the firm was to maintain its competitive position in the Chicago market
area. Although the planning process for the project was quite sophisticated, the decision to
undertake the project was based on a desire to maintain the company’s competitive position
in that market. In a similar manner, many business schools are restructuring their
undergraduate and Masters in Business Administration (MBA) programs to stay competitive
with the more forward looking schools. In large part, this action is driven by declining
numbers of tuition paying students and the need to develop stronger programs to attract
them.
Investment in an operating necessity project takes precedence over a competitive necessity
project, but both types of projects may bypass the more careful numeric analysis used for
projects deemed to be less urgent or less important to the survival of the firm.
4. The Product Line Extension: In this case, a project to develop and distribute new products
would be judged on the degree to which it fits the firm’s existing product line, fills a gap,
strengthens a weak link, or extends the line in a new, desirable direction. Sometimes
careful calculations of profitability are not required. Decision makers can act on their
beliefs about what will be the likely impact on the total system performance if the new
product is added to the line.
5. Comparative Benefit Model: For this situation, assume that an organisation has many
projects to consider, perhaps several dozen. Senior management would like to select a

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