Projects are undertaken for various reasons. Each project should have clear justification and methods defined to show its ‘worth’ taking it. Strategic goals of organization, Market Need, Technological Advancement, Competitive Advantage, Profitability, Project/Portfolio Management Office (PMO), Sponsors are key in project selection.
Below I presented the gist of few widely-used project selection methods. Decisions are made based on the best information in hand about a particular project at a given point of time. One can use either Benefit Measurement Methods(Comparative approach) or Constrained Optimization Methods (Mathematical approach) or both to arrive conclusion on project selection.Out of these two benefit measurement method is most commonly used.
Benefit measurement methods are based on measuring the benefits in taking up the project and comparing the results against other projects or a strategy benchmark. Cost-Benefit Analysis, Scoring Models, Economic Models, Discounted Cash Flow(DCF), Net Present Value (NPV), Internal Rate of Return are different types under Benefit measurement methods.
Constrained optimization methods uses complex mathematical calculation based on different worst/best case scenarios and probability of outcome and then selecting project on best results. Generally known methods are Linear programming, nonlinear programming, multi objective programming.
Let me explain about each of these methods in brief in a later post.
Update on July 19, 2010
Here is the detail post on Project selection methods - Project Selection Methods