What are project selection methods and why you should use them?

We all have to make lots of decisions in our life, and often it is related to choosing something out from a wide range of possible alternatives. You may use different methods for making your decision, such as asking for a piece of advice from your friends or relatives, look up for some information on the Internet, etc. However, if you work for a company and you have to choose something out from a range of available projects, you should do everything possible not to make a mistake because it may cost lots of money and efforts. Sometimes, it may be pretty hard to make a decision, but, luckily, there are project selection methods that can help us out.

Generally, it is a very useful technique that you can learn in order to use in your life and your work in future. You should note that it is not just enough to learn the basics, and it is also important to implement this theory on practice to understand and memorize how it should work. We will provide you with the necessary recommendations that you can check out.

What are the main project selection methods?

There are two main methods that you should learn about, including the following:
  • Benefit measurement methods;
  • Constrained optimization methods.

Both types of methods aim at finding the best decision that will result in the maximum profits or other benefits for the company, but there are some differences between them.

Although using these methods is time-consuming, it is essential for creating a good business plan. Generally, the particular method is chosen based on the characteristics of a project. For instance, if there is a small project that is not very complex, the first model can be used, and if you are considering a large and a pretty complex project, then the second model will be the best choice.

Usually, an organization has a strategy and process that helps it in choosing the best projects that match their objectives. Generally, it is conducted by top management; for instance, the PMO, Steering committee, etc.

While considering a particular project, they will evaluate several areas, including the following:
  • Whether they can do it or not;
  • If they there are enough resources for implementing the project;
  • If the completion of the project will help in achieving their objective (maximum profit, recognition, etc.).

What are benefit measurement methods?

This is a pretty simple and effective technique that is often used in selecting projects. It is associated with estimating and evaluating cash inflow/outflow. In simple words, for each of the projects, you will need to estimate the cost and benefits. Then you just need to compare the result and choose the most beneficial project.

The following are the benefits measurement techniques that can be used in selecting projects:
  • Benefit/cost ratio (BCR) is the ratio between the current value of inflow (how much you invest in the project) and the current value of outflow (how much you get from the project). Here you should pay your attention to your budget, and if it allows implementing the project, you should choose the one with a higher BCR;
  • Economic Value Added (EVA) is used for calculating the benefits for the company and defining the return on capital. In simple words, it is the profit that remains after capital expenditure and taxes are deducted. If you have to choose something out from many projects, you should prefer those that come with the higher EVA. It is also important to note that EVA is evaluated in currency, not in a percentage;
  • Scoring model is a technique that requires taking into account different objectives. The committee responsible for selecting a project will figure out relevant criteria, prioritize them, and then consider project considering these criteria. You should choose a project with the highest score;
  • Payback period. This is a period of time required to return the cost invested in the project. When choosing a project, it is important to select the one with the minimum payback period;
  • Net Present Value (NPV) is the difference between the present value of cash inflow and the outflow of the project. NPV should always be more than a zero, and you should choose a project with the highest NPV;
  • Discounted cash flow. One of the very important things that you should learn before moving further is discounted cash flows. It is important to keep in mind that the worth of money that we receive today is more than the worth of the same amount of money that we will receive in the future. For instance, the value $1,000 in 10 years will be lower than it is today. That is why when calculating the cost invested in the project, you should take into account discounted cash flow;
  • Internal Rate of Return (IRR) is the interest rate at which the NPV becomes zero. If you are choosing for many different projects, it is recommended to choose the one with the highest IRR;
  • Opportunity cost is that we have to give up by choosing another project. If you choose from lots of projects, you should pay your attention to the project with the lesser result.

What are constrained optimization methods?

You will, likely, have to use this set of methods if you are dealing with large and complex projects. It is also known as a mathematical model because pretty complex calculations are involved in determining the best project.

The following are the techniques used in selecting project:
  • Integer Programming;
  • Non-linear Programming;
  • Linear Programming;
  • Dynamic Programming;
  • Multiple objective programming.

What are non-financial considerations?

Although the main purpose of companies is earning a profit, there are also non-financial gains that are important to consider because these factors may be related to the overall success of the organization. The strategy of the organization is one of the most important factors taken into attention while selecting methods and projects.

Maintaining a great relationship with the customers is a crucial organizational goal. That is why it is important to build an effective and friendly customer support team. There are also other important organizational factors, including political reasons, shareholders' requests, speculative purposes, etc.

How to implement the chosen methods?

In order to ensure that you will make the best decision, it is important to pay your attention to different factors instead of only a few of them. It is also good if the company evaluates different projects using different methods, which will help ensure that they are going to make the right decision.

It is essential to train staff to works with these methods and use them in practice. It may take some time to master their skills, but, eventually, the company will benefit from that. There are different courses for employees, allowing them to gain enough knowledge on this topic and improve their skills.

What do you do if you need to write an academic paper on project selection methods?

If you have the assignment to write a paper on this topic, you can go through relevant sources of information and spend some time learning, writing, editing, and proofreading your work. However, if you do not feel like doing this work yourself, you can simply contact our professional writing company and order your paper from us.

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Bottom line

It, probably, looks complicated using all these methods, but this is just because it is not just enough to read about them. It takes lots of time to figure out how each of the methods works. That is why, it is important that the company has a team of professionals, like a committee, which members will be involved in a project evaluating and selecting when it is needed. These are the modern techniques, but it is also important to monitor the latest findings in order to find out if more effective methods appeared on the market.

Also, it is possible today to find lots of useful pieces of software, and that is why using a quality program that can help evaluate and compare different projects is really useful and beneficial. In this case, employees will only need to fill out fields with the required information to obtain a result within several minutes.

However, it is also important to keep in mind non-financial benefits that a company will obtain. They will, eventually, increase the popularity of the brand or provide some other benefits. For instance, it is known that people prefer buying products and goods from those companies that care about environments or social issues. That is why many companies choose to invest in social projects that can increase the awareness of their brand. s

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