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Project Selection

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Title: Project Selection & Approval Author: MAYS COLLEGE OF BUSINESS Last modified by: Lee Stone Created Date: 3/11/1999 5:30:09 PM Document presentation format – PowerPoint PPT presentation

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Title: Project Selection


1
(No Transcript)
2
Chapter 4 Project Selection Approval
  • Important factors
  • Selection Methods
  • Value Analysis, Optimization

3
IS Project Growth
  • Corcoran (1997) billions spent on technology
    every year
  • Sources
  • users
  • top management
  • within information systems
  • Process
  • idea
  • estimate benefits, costs

4
IS Project Motivation
  • Cost cutting/avoidance
  • Revenue maintenance/enhancement
  • Entering new markets
  • data mining
  • Gaining market share

5
Estimation Pitfalls
  • INTANGIBLES
  • nebulous benefits
  • better decision making
  • HIDDEN OUTCOMES
  • time, budget subject to great error
  • CHANGE
  • technology changes rapidly
  • outdating many good project ideas

6
Organizational Treatment of IS Projects
  • Hinton Kaye (1996) - survey of 50 organizations
  • CAPITAL rigid cost-benefit analysis
  • REVENUE need to invest to keep up
  • Investment Capital Mix Revenue
  • training 0 1 99
  • marketing 4 9 87
  • info tech 39 41 20
  • operations 58 31 11

7
Initial Risk Evaluation
  • Project manager ability
  • experience with project type, environment,
    language
  • familiarity with modern programming practice
  • availability of critical equipment, software
  • completeness of project team
  • personnel turnover
  • project team size
  • relative control of project manager over project
    team

8
Evaluation Techniques
  • Economic Financial
  • payback 68
  • cost-benefit 63
  • npv/irr 40
  • Multifactor
  • checklist 38
  • project profile 26
  • scoring/rating models 26
  • multicriteria 11
  • Mathematical Programming 18
  • Expert Systems 6

9
Criteria
  • Financial
  • net present value/internal rate of return
  • payback
  • profitability index/budgetary constraint
  • Management
  • support business objectives
  • respond to competition
  • better decision making
  • satisfy legal requirements
  • Development

10
SCREENING
  • Eliminate proposals not meeting minimum
    requirements
  • GOOD quick
  • BAD tradeoffs disregarded

11
CHECKLIST
  • Factors Minimum Standards
  • a way to implement screening
  • assure implementation of policy limits

12
PROJECT PROFILE
  • Display project features with standards
  • Compares strengths, weaknesses
  • Project Cost NPV/Cost Strategic?
  • A265 230,000 0.43 no
  • A801 370,000 0.51 yes
  • A921 790,000 0.46 no
  • B622 480,000 0.11 yes
  • B837 910,000 0.22 yes
  • C219 410,000 0.41 no

13
Cost-Benefit Analysis
  • Accurately estimate all benefits
  • identify overall profit impact
  • in net present terms
  • Accurately estimate all costs
  • overall profit impact, in net present terms
  • RATIO benefits/costs
  • lt1, dont adopt gt1, profitable
  • can adopt by highest ratio

14
Payback
  • Identify the time needed for costs to be
    recovered
  • simple
  • doesnt consider NPV

15
Value Analysis
  • Keen (1981)
  • DSS benefits usually very nebulous
  • Unfair to apply cost-benefit analysis
  • benefit estimates unreliable
  • Costs - identify as in cost-benefit
  • Benefits - leave in subjective terms
  • Managerial decision are you willing to pay this
    much for that set of benefits?

16
Multicriteria analysis
  • SMART - multiattribute analysis
  • identify criteria (including subjective)
  • measure utilities of alternatives over each
    criterion
  • elicit preference weights
  • swing weighting - reflect range of options
  • value S of weights times utilities

17
Optimization
  • 0-1 linear programming
  • each project a 0-1 variable
  • can take on value of 0 (not selected)
  • or 1 (selected)
  • optimize expected return to firm
  • subject to constraints
  • budget
  • scarce resources

18
Summary
  • Initial evaluation of projects is where most are
    eliminated
  • Companies need to avoid nonprofitable
  • if budget scarce, select most profitable
  • Many risks need to be considered
  • ideally identify net present costs, benefits
  • practically need to consider intangibles
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