Criteria for Choosing Project Model: When a firm chooses a project selection model, the following criteria, based

on Souder (1973), are most important: 1. Realism: The model should reflect the reality of the managers decision situation, including the multiple objectives of both the firm and its managers. Without a common measurement system, direct comparison of different projects is impossible. For example, Project A may strengthen a firms market share by extending its facilities, and Project B might improve its competitive position by strengthening its technical staff. Other things being equal, which is better? The model should take into account the
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realities of the firms limitations on facilities, capital, personnel, and so forth. The model should also include factors that reflect project risks, including the technical risks of performance, cost, and time as well as the market risks of customer rejection and other implementation risks. 2. Capability: The model should be sophisticated enough to deal with multiple time periods, simulate various situations both internal and external to the project (for example, strikes, interest rate changes), and optimize the decision. An optimizing model will make the comparisons that management deems important, consider major risks and constraints on the projects, and then select the best overall project or set of projects. 3. Flexibility: The model should give valid results within the range of conditions that the firm might experience. It should have the ability to be easily modified, or to be self-adjusting in response to changes in the firms environment; for example, tax laws change, new technological advancements alter risk levels, and, above all, the organizations goals change. 4. Ease of Use:

The model should be reasonably convenient, not take a long time to execute, and be easy to use and understand. It should not require special interpretation, data that are difficult to acquire, excessive personnel, or unavailable equipment. The models variables should also relate one-to-one with those real-world parameters, the managers believe significant to the project. Finally, it should be easy to simulate the expected outcomes associated with investments in different project portfolios. 5. Cost: Data gathering and modeling costs should be low relative to the cost of the project and must surely be less than the potential benefits of the project. All costs should be considered, including the costs of data management and of running the model. Here, we would also add a sixth criterion: 6. Easy Computerization: It should be easy and convenient to gather and store the information in a computer database, and to manipulate data in the model through use of a widely available, standard computer package such as Excel, Lotus 1-2-3, Quattro Pro, and like programs. The same ease and convenience should apply to transferring the information to any standard decision support system. In what follows, we first examine fundamental types of project selection models and the characteristics that make any model more or less acceptable. Next we consider the limitations, strengths, and weaknesses of project selection models, including some suggestions of factors to consider when making a decision about which, if any, of the project selection models to use. We then discuss the problem of selecting projects when high levels of uncertainty about outcomes, costs, schedules, or technology are present, as well as some ways of managing the risks associated with the uncertainties. Finally, we comment on some special aspects of the information base required for project selection. Then we turn our attention to the selection of a set of projects to help the organization achieve its goals and illustrate this with a technique called the Project Portfolio Process. We finish the chapter with a discussion of project proposals.