Project selection methods: As a project manager you may not be involved in selecting a project but you should know the selection method. There are two main types of Project Selection Methods.
Benefits Measurement Methods: These project selection methods involve comparing the values of one project against another. There are the following type of Benefit Measurement project selection techniques -
Murder Boards - This involves a committee asking tough questions from each project
Scoring Models - Different projects are given scores based on certain defined criteria. Project with higher score is selected.
Benefits Cost Ratio - This technique involves computing benefits to cost ratio (BCR) for a project. Project with higher BCR is selected.
Payback period - This technique involves considering how long it takes back to "pay back" the cost of the project. Inflation or interest earned in not considered in this technique. A project with lower pay back period is better.
Discounted Cash Flow - This technique takes into account the interest earned on the money. The Future Value (FV) of projects is compared.
FV=PV(1+i)n
PV is the present value of the project. A project with higher present value is better.
Internal Rate of Return (IRR) - A project that has higher IRR is better, as it is giving higher return on money.
Constrained Optimization Methods: These Project selection methods are used for large projects. These are techniques based on mathematical models. The Constrained Optimization techniques are -
• Linear Programming
• Non-Linear Programming
• Integer Algorithm
• Dynamic Programming
• Multi-objective Programming