Several associations invest a huge amount of money in new projects and in this way; they need to ensure that their investment in the project would be beneficial. Thus, it is crucial to analyze all the opportunities for a new project to justify the decision of investing money in the new project.
An organization can have several project opportunities on which they can invest and have the benefits but they cannot invest in all the projects, they have to be selective in this case. The method of selecting a new project which consists of high opportunities as well as benefits over the other projects is known as the project selection methods.
In this article, we’ll look at major project selection methods that can be proved beneficial for the organization via project management professional (PMP) certification. Be sure that you are going through the entire article to knowing several project selection methods along with project management certification.
Project Selection Methods
The organization has to go through certain project selection methods as they have to select from several project contracts handed to them. There’re certain resource constraints and due to that, the organization cannot accept multiple projects. What is exactly project management and how they have to complete one project before accepting the other. And this is where the project selections step in. Basically, there are two major categories of project selection method which are as followed:
1. Quantitative Methods
Quantitative methods include benefits measurement methods and constrained optimization methods.
Benefits Measurement Methods
Benefits measurement methods are mostly used for measuring the benefits of new projects. If the company consists of multiple new projects and has to decide which project has the highest benefits then they use the benefits measurement method. It would take them to know which project can give more benefits to their company compared to other projects.
- Cost-benefit analysis
Each organization requires a greater number of advantages than the expense put into the project.The measurementof the ratio of benefits to cost should be more than 1. This ratio is expected by several companies, as the higher the BCR (benefit to cost ratio), the more would be the opportunities.
- IRR or internal rate of return
IRR is the expected return on money from the project. At the internal rate of return, the NPV or net present value becomes zero which provides more opportunity to the company.
- Net present value
It symbolizes the difference between the total of the current estimation of all the speculation and the sum of the present estimation of all income.It is considered that NPV should be more than zero for having a profitable project.
- Payback period
It is the period in which the total investment of the company in the project should be recovered. Once the payback is done, the company would start making an actual profit. The project would more attractive if the payback period is low.
- Scoring model
In this model, different project options are set against a particular parameter. The company would assign a certain score to each project for each parameter. And the project which would have the highest score will be preferred to be one.
- Opportunity cost
In this concept, the company has to lose some benefits over choosing other benefits. For example, if the company has two projects A and B. By choosing the benefits of A, they have to let go of the benefits of B.
- Economic value added or EVA
This is one of the most important factors of the benefits measurement methods. In this, the company has to identify the profit of the project after deducting all the cost of capital.
Constrained Optimization Methods
Constrained optimization methods are usually used for larger projects and these methods are based on mathematical models of project selections. It requires complex as well as comprehensive calculations and simulations to understand project feasibility by going through uncertainties involved clearly.
Following are some important constrained optimization methods:
- Linear programming
Linear programming is the method in which the company would look towards the reduction of the project expense by efficiently reducing the duration of the project. the company would set a particular time or crash time which would enable them to reduce the activity time.
- Dynamic programming
Dynamic programming is nothing but a method in which the complex problem can be fixed into a sequence of simpler problems. It would help to analyze certain problem types.
- Integer programming
Integer programming is the method where the company would look towards a decision that works on integer values and not fractional-values. For example, inventing several cars would not be a fractional-value.
- Multiple objective programming
This method would allow the company to decide on multiple-problems with mathematical optimization. This programming is implemented when a single solution cannot optimize each problem. Such problems are said to be conflict and there is a certain probability that each problem consists of optimizing solutions.
2. Qualitative Method
It has happened many times that project selection is not based on financial considerations. In this case, there may be involvement of political reasons, personal baises, investor and customer requests, safety as well as a security consideration, and much more.
Involvement in Project Management (PMP) Selection?
Agency management: Agency management would set the selection criteria which ensures the selection process correlates agencies’ strategies.
Stakeholder: By including Stakeholders at the start of a project creation there would be more chances of successful outcomes. They must be informed about the outcomes of the project selection stage.
Project manager: The project manager plays a very important role in project selection methods. They would look at each prospect of the multiple projects and would choose the best among others. Moreover, with the help of proper time duration, they would be able to set reliable cost.
By now you know that project selection can be carried in various ways. It is the best way for organizations to try different methods before selecting the project which they consider would be more beneficial. We hope that this article helped you to find out the best way to select the project.