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Project Initiation: Strategic Planning and Project Selection The first step in initiating projects is to look at the big picture or strategic plan of an organization Strategic planning involves determining long-term business objectives Projects should support strategic and financial business objectives
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Project Selection
Process of evaluating project and then choosing to implement some set of them so that the objectives of the parent organizations will be achieved.
Criteria of Choice
Three important criteria for projects:
There is a need for the project There are funds available Theres a strong will to make the project succeed
Nonnumeric Models
1. The Sacred Cow suggested by a senior and powerful official 2. The Operating Necessity 3. The Competitive Necessity 4. The Product Line Extension 5. Comparative Benefit Model
Numeric Models
1. Payback period compare by year of loan (total) 2. Rate of Return- by Rate of Cost (ROC) and Rate of Investment (ROI) 3. Discounted Cash Flow (NPV)- inflow by quarter times Present Value (PV)= 1/A; A = (1+i)-n 4. Profitability Index = net profit/cost 5. Scoring
Excel file
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Return on Investment
Return on investment (ROI) is income divided by investment The higher the ROI, the better Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects
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Payback Method
Another important financial consideration is payback analysis The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the net dollars invested in a project Payback occurs when the cumulative discounted benefits and costs are greater than zero
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The higher the weighted score, the better See What Went Right? for a description of how a mortgage finance agency uses a weighted scoring model for projects.
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