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Module 3 - Project Selection
Part A
Dr. Sang-Heon LEE
School of Advanced Manufacturing and Mechanical Engineering
University of South Australia
MFET 5040
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Steps so far/what we are going to do
Identification of a real need:
problems, services, products
Clear & exact understanding of
objectives, scope & outcome
Identify all reasonable
alternatives: Brain storming
Select the best option: selection
criteria, selection method
Project Charter
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1. Understand the need of selection process
2. Explain the following selection models and how to
use them
Check list
Scoring model
Cost effectiveness analysis
Analytic hierarchical process
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Introduction/selection process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytic Hierarchy Process
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Introduction
Any project can be completed using different
methods or options.
Due to some financial, technical or other reasons
(called selection criteria), the only BEST option (called selection criteria), the only BEST option
should be selected to complete the project.
Images fromhttp://office.microsoft.com/en-au/images/ 6/38
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A selection process is designed to select the best
way to achieve the project objectives.
An initial screening will allow to short-list most
potential alternatives by eliminating most unfeasible
Introduction
ones: 2 to 5 options remaining.
Then we need to choose the best option based on
selection criteria/formal selection method chosen.
Images fromhttp://office.microsoft.com/en-au/images/ 7/38
Introduction
Throughout the whole
project, the selection
process should be repeated
several times in response to
new technologies
developed,
changing environmental
& financial
circumstances,
Modified project goal
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Every project should contribute values to the
organisations strategic vision to meet the future
needs of its customers.
Hence, the project selection process should
Project and strategic plan of the
company
Hence, the project selection process should
consider the companys strategic goals.
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Lecture outline
Introduction/selection process:
Continued
Check List
Scoring Model
Cost Effectiveness Analysis
Analytic Hierarchy Process
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1. Understand the CLEAR
definition and the scope of the
project: Collect more data if
required
Procedure of selection processes
2. Find different alternatives
3. Determine selection criteria
to be used in the selection
process
4. Use a selection method to
select the best option.
Images fromhttp://office.microsoft.com/en-au/images/ and http://daum.net 11/38
Selection process
Selection
process always
involves a
subjective
decision
http://www.dilbert.com/
decision
justification is
essential!
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Identifying alternative approaches is usually done in
the following ways
Researches, especially on past experiences/data
Using brain storming techniques
Identifying alternatives
Using brain storming techniques
Do it in a team environment
Include experts and stakeholders like
customers
Applying initial screening to limit the number of
options for the further selection process
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Selection criteria-Examples
Production
Time to ready to install
Length of disruption during
installation
Learningcurve-time until full
operation
Effects on waste and rejects
Energy requirements
Facilityand equipment requirement
Safety of process
Marketing
Size of potential market
Probablemarket share
Time until market share is acquired
Impact on current production line
Consumer acceptance
Impact on consumer safety
Estimatedlife of output
Administration
Meet government safety standard
Meet government environmental
standard
Impact on information system
Reactions of stakeholders
Patents and trade secret protection
Impact on the reputation
y p
Change in rawmaterial usage
Availabilityof rawmaterial
Required development time and cost
Financial consideration
Profitability, net present value of
investment
Impact on cash flows
Paybackperiod
Cash requirement
Time until break-even
Size of investment
Cost and benefit
Personnel issues
Trainingrequirements
Labour skill requirement
Availabilityof required labour skills
Change on current workforce
Change in the size of labour force
Communicationrequirements
Impact on working condition
Technology
Availabilityof required technology
Impact on current technologylevel
Maintainability
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Several selection methods have been developed
and used
The more comprehensive techniques, the more
data and effort that are needed for the analysis
Selection method
da a a d o a a d d o a ay
Note again that depending on
the method chosen, the
selected final alternative may
be different J ustification !!!
Images fromhttp://office.microsoft.com/en-au/images/ 15/38
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Non-financial method
Check List
Scoring Models
Cost Effectiveness Analysis
Project selection methods
Analytic Hierarchy Process
Financial methods (Module 3)
Payback Period
Equivalent Worth Method NPV, EUAW
Internal Rate of Return (IRR)
Benefit-Cost Analysis
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Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
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Simple method: it requires a relatively small
amount of information
Appropriate to eliminate the most undesirable or
infeasible proposals usually at the early stage of
l i h h il bl d i
Check list
selection process or when the available data is
limited.
Usually use a simple 3 point scale: Good(3),
OK(2), Bad(1)
Disadvantage: No difference on the importance
among selection criteria.
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Check list - Example
Selection
criteria
Option A Option B Option C Option D Option E Option F
Time to market
Risk
2 1 3 1 2 2
1 2 3 1 3 1
Reliability
Patent
protection
Efficiency
Eliminate Plan D and F for further consideration
11 9 11 6 12 6
3 1 2 2 2 1
2 2 1 1 3 1
3 3 2 1 1 1
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Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
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In check list model - no differences in the
importance among the selection criteria.
However, in practical cases, some selection criteria
would be more important than other criteria.
Scoring model
For example, in some products (like mobile
phones, or mp3 players) time to market is more
important than efficiency.
Scoring model adopts weighting factors to
address this issue.
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1. Identify all possible alternatives
2. Determine the selection criteria depending
on the requirements of the project
Scoring model - Process
3. List all selection criteria in a descending
order of importance: From the most
important to the least important
Note that the order of the weights is still
subjective justification required
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Scoring model - Example
Selection
criteria
Order of
importance
Time to market
Risk
1
2
Selection
criteria
Time to market
Risk
Reliability
Patent
protection
Efficiency
4
5
3
Efficiency
Reliability
Patent
protection
Reordering
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4. Assign the least important
criterion a weight of 10
5. Assign a numerical weight
to each criterion depending
h h l i
Scoring model - Process
Selectioncriteria weight
Timetomarket
Ri k
40
on how each selection
criterion is relatively
important to the least
important one (subjective
measure).
6. Then add all weights
Risk
Efficiency
Reliability
Patentprotection
Total 125
10
15
30
30
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7. Divide each weight
with the sum of all
weights
normalised weight
Scoring model - Process
Selectioncriteria weight
Timetomarket 40
Risk 30
normalised
weight
40/125=0.32
30/125=0.24
Note that the sum
of all normalised
weights should be
1.0
Efficiency 30
Reliability 15
Patentprotection 10
Total 125
30/125=0.24
15/125=0.12
10/125=0.08
1.0
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8. Determine the effectiveness score between
0 and 100of each alternative depending on
its effectiveness for each selected criterion by
comparison
Scoring model - Process
comparison.
The higher the effectiveness value, the
more effective.
Still subjective decision!
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Scoring model - Example
80 99 1 60
WT. WT. WT. WT. Eff Eff Eff Eff
Option E Option C Option B Option A
0 32
Normalised
Weight
Timeto market
Criteria
1
99
85
99
80
50
1
90
90
99
90
80
1
30
1
99
30
99
1
60
1
0.08
0.12
0.24
0.24
0.32
Patent Protection
Reliability
Efficiency
Risk
Time to market
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9. Multiply the normalised weight with the
effectiveness value for each alternative in the
list this is the weighted effectiveness score
of each alternative in each selection criterion
Scoring model - Process
of each alternative in each selection criterion.
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Scoring model - Example
80 99 1 60 25 6
WT.
317
WT.
0 32
WT.
19 2
WT. Eff Eff Eff Eff
Option E Option C Option B Option A
0 32
Normalised
Weight
Timeto market
Criteria
1
99
85
99
80
50
1
90
90
99
90
80
1
30
1
99
30
99
1
60
0.08
11.9
20.4
23.8
25.6
4
0.12
21.6
22.8
31.7
7.2
9.6
0.24
7.2
0.32
7.9
3.6
23.8
0.24
19.2
1
0.08
0.12
0.24
0.24
0.32
Patent Protection
Reliability
Efficiency
Risk
Time to market
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10. Add the weighted effectiveness scores together to
get the total effectiveness for each alternative
11. Choose the best one: the higher the total
Scoring model - Process
weighted effectiveness score, the better the
project
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Scoring model - Example
80 99 1 60 25 6
WT.
317
WT.
0 32
WT.
19 2
WT. Eff Eff Eff Eff
Option E Option C Option B Option A
0 32
Normalised
Weight
Timeto market
Criteria
81.8 80.2 24.6 54.7
Total Effectiveness
1
99
85
99
80
50
1
90
90
99
90
80
1
60
1
99
30
99
1
60
0.08
11.9
20.4
23.8
25.6
4
0.12
21.6
22.8
31.7
7.2
9.6
0.24
7.2
0.32
7.9
3.6
23.8
0.24
19.2
1
0.08
0.12
0.24
0.24
0.32
Patent Protection
Reliability
Efficiency
Risk
Time to market
Chosen
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Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
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In most cases, the more investment cost
the greater returns.
If the investment cost is fixed or limited, it is
Cost effectiveness analysis
better to know the effectiveness of cost for a
project Cost-effectiveness (C-E) analysis.
Basically to decide whether it is worth
spending more money to do work more
effectively.
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Cost effectiveness analysis
J ust assume the costs are given as follows:
WT. WT. WT. WT. Eff Eff Eff Eff
Option E Option C Option B Option A Normalised
Weight
Criteria
81.8 80.2 24.6 54.7
Total Effectiveness
1
99
85
99
80
50
1
90
90
99
90
80
1
60
1
99
30
99
1
60
0.08
11.9
20.4
23.8
25.6
4
0.12
21.6
22.8
31.7
7.2
9.6
0.24
7.2
0.32
7.9
3.6
23.8
0.24
19.2
1
0.08
0.12
0.24
0.24
0.32
Patent Protection
Reliability
Efficiency
Risk
Time to market
Criteria
Costs 350K 300K 250K 450K
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Calculate the normalised figures for both cost
and total effectiveness and compare the result!
Firstly, the normalised cost
Cost effectiveness analysis
Alt ti C t N li d C t N li d C t Alternative Cost Normalised Cost
A 450K
B 250K
C 300K
E 350K
Total 1350K
Normalised Cost
450K/1350K=0.3333
250K/1350K=0.1852
300K/1350K=0.2222
350K/1350K=0.2593
1
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Secondly, the normalised total effectiveness
Cost effectiveness analysis
Alternative Totaleffectiveness
NormalisedTotal
effectiveness
A 54 7
Normalised Total
effectiveness
54 7/241 3=0 2267 A 54.7
B 24.6
C 80.2
E 81.8
Total 241.3
54.7/241.3=0.2267
24.6/241.3=0.1019
80.2/241.3=0.3324
81.8/241.3=0.3390
1
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Then calculate the ratio between normailised
effectiveness and normalised cost to find the
best one.
Cost effectiveness analysis
Alternative
Normalised Total
effectiveness
Normalised
Cost
Effectiveness/Cost ratio
Effectiveness/Cost ratio
A 0.2267 0.3333
B 0.1019 0.1852
C 0.3324 0.2222
E 0.3390 0.2593
Alternative C is chosen even though it is a bit less
efficient but it costs less more cost effective.
0.2267/0.3333=0.6802
0.1019/0.1852=0.5502
0.3324/0.2222=1.4959
0.3390/0.2593=1.3014
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Selection process is
to be continued in to be continued in
Module 3B
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