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Project Evaluation and Screening Methods

Part 1: Discuss how excessive or exclusive reliance on other screening methods might lead to similar problems?
Name some key criteria that should be used in evaluating all new projects before they are added to the current portfolio. What is the effect of poor project-screening methods on a firm's ability to manage its projects effectively?

Part 2:
How would you explain the reasons for a divergence of opinion from one technique to the next in project evaluation? What are the strengths and weaknesses of each screening method? What do you think about the use of project selection methods in organizations?

Solution Preview

Part 1:
1. Using only one method of screening does not make good business sense and can easily lead to incorrect responses. It would be wise for the company to develop a decision making process that involves more than discounted cash flows. Focusing on cash flow alone may leave out several important advantages or opportunities that the project may hold. In addition to a financial analysis, a demographic analysis or competitive analysis should be done as well. Using only one method can normally offer only one point of view. As the consultant stated, the strategic fit of the organization, the portfolio management, and other concerns such as market penetration or market saturation should also be considered. By considering only financial projections for the basis of the decision, the company is making decisions in a silo with blinders on. The lack of other, pertinent information can (and has been) detrimental to the company as a whole. In a company that practices sound decision making procedures, multiple steps will be taken to ensure the reliability of the information and allow the employees and the company to make an educated decision. Without researching other components (marketing, accounting, customer service, logistics, technical support, manufacturing, legal, etc.) the decision is uneducated and simply unwise.

2. To ease the transition into multiple criteria decision making, the team could drill-down on the discounted cash flow projections and analyze the true cost of the project being considered. The variable and hidden costs should be identified to the best of their ability to determine the true profitability of the idea. Using a ...

Solution Summary

The expert examines project evaluation and screening methods.

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