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Overview of Project Selection Methods

The report depicts the importance of adapting proper project selection method for evaluating the project for EGCM a medium sized family owned manufacturing company. In order to increase the prototyping capability of the business organization the company is willing to consider two different projects. The first project is about the existing company practices around the prototyping and the second project is about minimizing the cost by using 3D printing to increase the speed.

Different project selection methods are elaborated in this project. Apart from this, the advantages and disadvantages of the project selection methods are also illustrated in this report. In addition to this, being the project consultant, the best project selection approach will be suggested for EGCM Company. Based on both the positive and negative impacts, the most suitable project will be suggested for EGCM Company that will help the organization to gain effective revenue from the competitive marketplace.    

Decision models are mainly divided into two broad categories such as comparative approach and mathematical approach (Chen & Teng, 2015). On the other hand the comparative approach is again divided into benefit measurement methods and constrained optimization method.

Discounted cash flow method is referred to as one of the most effective methods for project selection.  This technique is widely used in many business organizations for selecting the project and his selection process is based upon the estimated present value of cash inflow and cash outflow (Tjader et al., 2014). In this process both the cost and benefits will be calculated and then will be compared along with other projects. The two suggested projects for EGCM are existing company practices about prototyping and the other is about using 3D printing utilization for increasing the speed of a project and reducing the cost of a project.

If for gaining competitive advantages from the competitive marketplace the Discounted Cash Flow method is selected then the assumptions those will be undertaken are as follows:

  • The future value of the project will be ascertained by considering both the present value and the interested that is earned from the money invested.
  • Based on the higher value the net profit of the business organization will be selected.  
  • The project is assumed to be completed within the estimated time phase after the implementation of this project.
  • It is assumed that the rate of return on investment will be higher if the company considers discounted cash flow method.

Advantages

  1. In order to valuing the business this method can be applied EGCM, as a whole process. On the other hand, in order to valuing all the individual components of this business process the discounted cash flow method is very much beneficial (Langley et al., 2013).
  2. In order to deal along with too complex situations also this process is very much beneficial. Additionally, the process can be understood and applied easily and even the modification approach is also very much appreciable.  
  3. Due to the basis and the valuation of DCF both the equity stakeholders can use this process and even two different companies can be compared easily. The decision regarding whether, extra capital is needed to be invested or not can also be determined with the help of this method (Aragones-Beltran et al., 2014).

Disadvantages 

  1. The process is dependent upon the input values and due to this reason, slight change in the input will affect the entire process.
  2. In this process the finance manager is required to use the future cash flows but it is little difficult to predict the future value easily.  If any of the project team member become able to predict the future value successfully then, this process will be defined as beneficial.  

This model is another project selection method and the developers are required to create a committee that lists all the relevant criteria for the project selection method. According to the importance and weight of the criteria the components are listed and in order to gain highest score certain principle are need to be considered.  Three categories are required to be considered from the list of categories including benefits, cost, risk, technology, feasibility, margin and size. The range must be comprised based on the scoring criteria.

The Discounted Cash Flow Method

Assumptions

  • Risk is referred to as one of the most categories that are required to be considered for the EGCM project.
  • Certain numeric values has been assigned for selecting the scores
  • The project will be enough beneficial if the score model is used.

Advantages

  1. The project developers can efficiently predict the profitability from the project. The scoring model has a range of processes that helps it to analyze the project profit. Thus, it can be said that through this process, the finance team of EGCM, can estimate the profit easily (Ahmad & ul Haq, 2016).
  2. The project decisions can be effectively undertaken with accurate consistency and time specification as well.  
  3. Different reporting capability is also available it means that the project manager can gain quality report from the process.  

Disadvantages 

  1. It requires higher investment for forming a good model (Aphinyanaphongs et al., 2014).
  2. The developers are needed to select the right parameter for rating the project
  3. The project manager should continuously monitor the process

Different numeric models such as PayBack Period, Return on Investment (ROI), Net Present Value (NPV), and Internal Rate on Investment can be used for evaluating the project.

Assumptions 

  • Staff training is not needed
  • Financially initial investment is assumed to be returned

Advantages

  1. The process is very much simple and this can be easily applied regardless of the type of the project (Harwood et al., 2014).
  2. Provides more liquidity on decision making
  3. The method has the ability to deal with affective risks effectively.
  4. The method can provide different Short term approach

Disadvantages 

  1. The time value cannot be recognized properly in the conclusion of the PayBack period.
  2. It is more focused to liquidity and less focused on company profitability.
  3. Before the PayBack period only the cash flow is possible it means that after PBP cash flow will not be considered (Lawrence & Moran, 2015).

This is referred to as one of the most efficient model that is widely used in different business organizations for resolving different problems or for maximizing the real time functionalities (Snyder, 2014).  It can be done by choosing real integer values, systematically. In order to find the best available values for some of the objective functions this approach is very much appreciable.

Assumptions 

  • It is assumed that with the help of this approach the most available values can be applied.
  • It can comprise large field of applied mathematics very easily.
  • Both real value objectives and scalar objectives can be used by the project manger to execute this project. Varieties of objective functions of different domains are also available in this process.
  • In this process also the staffs do not require training.

Advantages

  1. Complex set of mathematical problems can be easily solved with the help of this particular approach.
  2. The problems can be solved regardless of the background of the scenario that is whether it is worst or good (Bolon-Canedo et al., 2014).
  3. The processes fall under the model include linear programming method of project selection, integer programming method and multi objective programming method.

Disadvantages 

  1. If incorrect constrain are selected in terms of resources then the entire project will be a failure.
  2. In addition to this, if incorrect cost and times is estimated then also the project will be a failure (Tuzkaya & Yolver, 2015).

It can be suggested that in order to lead the organization towards measurable success the most suitable project selection method is discounted cash flow method because, in this method two different models can be effectively compared. On the other hand the scoring model is also beneficial from the business perspectives but if the project manager fails to identify the accurate parameter for rating the project hen the entire project will be failure (Kerzner, 2013). Considering the constraints of the project it can be said that discounted cash flow model adaptation will be more beneficial.

Conclusion 

From the overall discussion it can be concluded that, both the projects will lead the organization towards measurable commercial profit. As for EGCM Company two models are being compared thus the most effective method that is required to be considered for selecting the project should be benefit measurement method. Commercial benefit for an organization is referred to as one of the most important things that are needed to be considered. In order to gain measureable profit from the competitive market it is necessary to select the most appreciable project selection method. The most suitable method will provide various opportunities to the business organization also.

References

Ahmad, B., & ul Haq, I. (2016). Project Selection Techniques, Relevance & Applications in Pakistan. International Journal of Technology and Research, 4(2).

Aphinyanaphongs, Y., Fu, L. D., Li, Z., Peskin, E. R., Efstathiadis, E., Aliferis, C. F., & Statnikov, A. (2014). A comprehensive empirical comparison of modern supervised classification and feature selection methods for text categorization. Journal of the Association for Information Science and Technology, 65(10), 1964-1987.

Aragones-Beltran, P., Chaparro-González, F., Pastor-Ferrando, J. P., & Pla-Rubio, A. (2014). An AHP (Analytic Hierarchy Process)/ANP (Analytic Network Process)-based multi-criteria decision approach for the selection of solar-thermal power plant investment projects. Energy, 66, 222-238.

Arvanitou, E. M., Ampatzoglou, A., Chatzigeorgiou, A., & Avgeriou, P. (2016). Software metrics fluctuation: a property for assisting the metric selection process. Information and Software Technology, 72, 110-124.

Bolon-Canedo, V., Sánchez-Marono, N., Alonso-Betanzos, A., Benítez, J. M., & Herrera, F. (2014). A review of microarray datasets and applied feature selection methods. Information Sciences, 282, 111-135.

Chen, S. C., & Teng, J. T. (2015). Inventory and credit decisions for time-varying deteriorating items with up-stream and down-stream trade credit financing by discounted cash flow analysis. European Journal of Operational Research, 243(2), 566-575.

Harwood, D. W., Souleyrette, R. R., Fields, M. A., & Green, E. R. (2014). Comparison of Countermeasure Selection Methods for Use in Road Safety Management.

Kerzner, H. (2013). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Langley, A., Smallman, C., Tsoukas, H., & Van de Ven, A. H. (2013). Process studies of change in organization and management: Unveiling temporality, activity, and flow. Academy of Management Journal, 56(1), 1-13.

Lawrence, R. L., & Moran, C. J. (2015). The AmericaView classification methods accuracy comparison project: A rigorous approach for model selection. Remote Sensing of Environment, 170, 115-120.

Schwalbe, K. (2015). Information technology project management. Cengage Learning.

Snyder, C. S. (2014). A Guide to the Project Management Body of Knowledge: PMBOK  Guide. Project Management Institute.

Tjader, Y., May, J. H., Shang, J., Vargas, L. G., & Gao, N. (2014). Firm-level outsourcing decision making: A balanced scorecard-based analytic network process model. International Journal of Production Economics, 147, 614-623.

Tuzkaya, U. R., & Yolver, E. (2015). R&D project selection by integrated grey analytic network process and grey relational analysis: an implementation for home appliances company. Journal of Aeronautics and Space Technologies, 8(2), 35-41.

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