SAB5#22_Methods of selection project

SAB5#22_Methods of selection project

1. Benefit measurement methods

   • Murder board
   • Peer review
   • Scoring models
   • Economic models
     • You can choose one or more of these.
     • Present Value
       • The value today of future cash flows. Avoid confusing Present value and Planned value
     • Net present value
       • Present value minus cost over many periods
         • The project with the greatest NPV is selected
     • Internat rate of return (IRR)
       • The higher is the better
     • Payback period
       • Select one with the shorter payback period
     • Cost - benefit analysis
       • Benefit/cost Benefit cost ratio should be greather than 1
         • Revenue is not the same as profit. If benefit cost radio > 1 then  benefits > costs. if benefit cost radio < 1 then benefits < costs. if benefit cost radio = 1 then benefits = costs.
     • Economic value added (EVA)
       • The project returns to the project more value than the initiative cost? Is not the same as Earn Value Analisys
       • The project returns more value than the initiative cost?
     • Opportunity cost
       • Is the value of the project not selected
         • Project A $45000 Project B $85000 Project Selectd = Project B Opportunity cost = $45000
     • Sunk cost
       • Expended cost
         • Is the over cost of the project and not should be considered when deciding whether to continue a troubled project
     • Law of Dimishing returns
       • A certain point, adding more inputs will not increase productivity
     • working capital
       • Is the amount of money the company has available to invest
     • Depreciation
       • Straight line depreciation
         • The same amount of depreciation is taken each year
       • Accelerated depreciation
         • is faster than straight line depreciation
         • Double declining balance
         • Sum of the year digits

2. Constrained optimization methods

   • Linear programming
   • Integer programming
   • Dynamic programming
   • Multi - objective programming

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