One of the biggest headaches that organizations or governmental agencies face is that of choosing which projects to undertake. When an agencies has several proposals of the table for possible considerations there are various factors which should be considered. These are critical in determining which projects are to be considered. You can’t just take up any project.
The projects to be taken up have to be in line with the organization mission, vision and goals. At this point it is important to have in place project selection methods. It is important to know which project selection method is appropriate for a given situation.
The modern businesses use specific project selection methods to get it right. This is the topic for this blog article. Two of the most prominent methods are: constrained Optimization methods and secondly we have the Benefit Measurement method.
The value of one project need to be measured carefully against that of the other comparable projects. The team working for an organization should have a meeting to determine what ideal characteristics you want to see in your project. Which objectives do you want to meet? Then award point scored by each project and rank the overall scores. The project with the highest score is what you need to invest in.
Discounted Cash Flow
The Discounted Cash flow method is a method used to evaluate the future value of a project by considering the Present Value and the interest to be earned as a result of the investment. The project which scores the highest is the best fit for your organization.
Under this method you also consider the Internal Rate of Return which is commonly referred to as IRR. A rational person will always be on the lookout for higher IRR from any project.
Constrained Optimization Method
The constrained optimization method used a number of calculations to decide on whether or not to take up and implement a certain project proposal. If it fails the test when this method is used, it is rejected.
Cost Benefit Analysis (CBA)
The Cost Benefit Analysis (CBA) is used by many organizations around the world to make decisions concerning in project selection. Under this method, all the benefits and costs of a project are listed and weighed to consider which ones overweigh the other. The costs and benefits have to be accurately quantified in order to make a good decision at the end of the exercise.
Opportunity Cost Method
Finally, it is possible to select a project based on the opportunity cost. When evaluating projects always remember the benefits you could have to forgo if you decide to go ahead with one project and not the other. In most cases, individuals, organizations and agencies aim at maximizing profits while minimizing costs.
Heldman, K. (2007). PMP: Project management professional exam study guide. Indianapolis, Ind: Wiley Pub.