Factors to be considered for project selection
- 1. Project Selection Methods and factors Dr. N. Yuvaraj Assistant Professor Achariya Arts and Science College Villianur, Puducherry-605110 Yuvaraj.aasc@achariya.org
- 2. One of the biggest decisions that any organization would have to make is related to the projects they would undertake. Once a proposal has been received, there are numerous factors that need to be considered before an organization decides to take it up. The most viable option needs to be chosen, keeping in mind the goals and requirements of the organization.
- 3. How is it then that you decide whether a project is viable? How do you decide if the project at hand is worth approving? This is where project selection methods come in use. Choosing a project using the right method is therefore of utmost importance. This is what will ultimately define the way the project is to be carried out.
- 4. But the question then arises as to how you would go about finding the right methodology for your particular organization. At this instance, you would need careful guidance in the project selection criteria, as a small mistake could be detrimental to your project as a whole, and in the long run, the organization as well.
- 5. Selection Methods There are various project selection methods practised by the modern business organizations. These methods have different features and characteristics. Therefore, each selection method is best for different organizations.
- 7. As the value of one project would need to be compared against the other projects, you could use the benefit measurement methods. This could include various techniques, of which the following are the most common:
- 8. You and your team could come up with certain criteria that you want your ideal project objectives to meet. You could then give each project scores based on how they rate in each of these criteria and then choose the project with the highest score. When it comes to the Discounted Cash flow method, the future value of a project is ascertained by considering the present value and the interest earned on the money. The higher the present value of the project, the better it would be for your organization. The rate of return received from the money is what is known as the IRR. Here again, you need to be looking for a high rate of return from the project.
- 9. The mathematical approach is commonly used for larger projects. The constrained optimization methods require several calculations in order to decide on whether or not a project should be rejected. Cost-benefit analysis is used by several organizations to assist them to make their selections. Going by this method, you would have to consider all the positive aspects of the project which are the benefits and then deduct the negative aspects (or the costs) from the benefits.
- 10. 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 in the selection process are: Would this decision help me to increase organizational value in the long run? How long will the equipment last for? Would I be able to cut down on costs as I go along?
- 11. When choosing any project, you would need to keep in mind the profits that you would make if you decide to go ahead with the project. Profit optimization 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.
- 12. 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 organization considering a wide range of factors rather than concentrating on just a few. Careful consideration would therefore need to be given to each project.
- 13. Project selection is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved Managers often use decision-aiding models to extract the relevant issues of a problem from the details in which the problem is embedded Models represent the problem’s structure and can be useful in selecting and evaluating projects Project Selection
- 14. • Market analysis • Production Factors /Technical analysis • Financial analysis • Economic analysis • Ecological analysis • Personnel factors Other Key Factors in Project Analysis & Selection
- 15. Marketing Factors Size of potential market for output Probable market share of output Time until market share is acquired Impact on current product line Consumer acceptance Impact on consumer safety Estimated life of output Spin-off project possibilities
- 16. Production factors Time until ready to install Length of disruption during installation Learning curve-time until operating as desired. Effects on waste & rejects Energy requirements Facility & other equipment requirements Safety of process Other applications of technology Changes in cost to produce a unit output Change in raw material usage Availability of raw materials Required development time & cost Impact on current suppliers Change in quality of output
- 17. Financial Factors Profitability Impact on cash flows Payout period Cash requirements Time until break-even Size of investment required Impact on seasonal &cyclic fluctuations
- 18. Personnel factors Training requirements Labour skill requirements Availability of required labour skill Level of resistance from current work force Change in size of labour force Inter & intra group communication requirements Impact on working conditions
- 19. Administrative & Miscellaneous factors Meet govt. safety, environmental standards Impact on information system Reaction of stock holders & securities market Patent & trade secret protection Impact of image with customers, suppliers & competitors Degree to which we understand new technology Managerial capacity to direct & control new process
- 20. Thank you