Chapter 3 Project Selection and Portfolio Management

B) Change in physical environment. - as apart of internal operating issues

10) An internal operating issue in project screening and selection is: A) Expected return on investment. B) Change in physical environment. C) Patent protection. D) The chance that the firm's goodwill will suffer due to the quality of the finished project.

B) The firm's reputation may suffer when the product becomes available.

11) Quality risk refers to the chance that: A) The project relies on developing new or untested technologies. B) The firm's reputation may suffer when the product becomes available. C) The well-being of the users or developers may decline dramatically. D) The firm may face a lawsuit.

C) The potential for lawsuits or legal obligation.

12) One facet of risk in project screening is: A) The change in manufacturing operations resulting from the project. B) The initial cash outlay. C) The potential for lawsuits or legal obligation. D) The strategic fit of the project with the company.

C) Need to develop employees.

13) One project factor that directly impacts a firm's internal operations is the: A) Expected return on investment. B) Financial risk. C) Need to develop employees. D) Impact on company's image.

C) The long-term market dominance.

14) A commercial factor in project selection and screening might be: A) A need to develop employees. B) The likelihood that users of the project are injured. C) The long-term market dominance. D) The impact on the company's image.

D) Every decision model has both objective and subjective factors.

15) Which statement regarding project selection model is BEST? A) Organizational reality can be perfectly captured by most decision-making models. B) Before selecting any project, the team should identify all the relevant issues that play a role in project selection. C) Decision models must contain either objective or subjective factors. D) Every decision model has both objective and subjective factors.

A) The most complete model in the world is still only a partial reflection of organization reality.

16) Which statement regarding project selection and screening criteria is BEST? A) The most complete model in the world is still only a partial reflection of organization reality. B) It is possible, given enough time and effort, to identify all relevant issues that play a role in project selection. C) Decision models are either objective or subjective. D) For many projects, more than 80% of the decision criteria are vital.

A) Whether one criterion is more important than another.

17) A checklist screening model does NOT consider: A) Whether one criterion is more important than another. B) Governmental or stakeholder interference. C) Product durability and future market potential of the product line. D) The riskiness of the new venture.

B) Score values assigned to each criterion in terms of its rating.

18) A simple scoring model for project evaluation requires: A) Importance weights from 1 to 10 assigned to each criterion. B) Score values assigned to each criterion in terms of its rating. C) A division of weights by scores to arrive at a standardized score for each criterion. D) A summation for each criterion to achieve an overall criterion score.

C) Scaling models allow decision makers to treat one criterion as more important than another.

19) The simple scoring model has this advantage over a checklist model for screening projects. A) Scaling from 1 to 5 is extremely accurate. B) Scaling models ensure a reasonable link between the selected and weighted criteria and the business objectives that motivated their selection. C) Scaling models allow decision makers to treat one criterion as more important than another. D) Scaling models have been proven to make correct decisions better than 95% of the time while checklists only achieve 80% accuracy.

B) Will the project work as intended?

2) Souder's project screening criterion of *realism* addresses the question: A) How many workers will the project need? B) Will the project work as intended? C) Who are the stakeholders? D) How often should the project team meet?

B) Project Runway Greenlight = 20 1x1x 3 =3 2 x2 x2 = 8 3 x3 x1 = 9 3+8+9 = 20 Runway = 30 X = 27 Ilevomit = 28 select the highest weight

20) A project manager is using a simple scoring model to decide which of four projects is best, given the company's limited resources. The criteria, importance weights, and scores for each are shown in the table. Which project should be chosen? Project; Criteria; Importance Weight Score Greenlight 1 1 3 2 2 2 3 3 1 Runway 1 1 2 2 2 1 3 3 3 X 1 1 1 2 2 2 3 3 2 Ilevomit 1 1 2 2 2 2 3 3 2 A) Project Greenlight B) Project Runway C) Project X D) Project Ilevomit

C) Project Fring White = 37 Pinkman = 33 Fring = 38 Salamanca = 34

21) A project manager is using a simple scoring model to decide which of four projects is best, given the company's limited resources. The criteria, importance weights, and scores for each are shown in the table. Which project should be chosen? Project; Criteria; Importance Weight Score White 1 1 2 2 2 2 3 3 3 Pinkman 1 1 3 2 2 3 3 3 2 Fring 1 1 3 2 2 2 3 3 3 Salamanca 1 1 3 2 2 1 3 3 3 A) Project White B) Project Pinkman C) Project Fring D) Project Salamanca

D) Project A is better than project B for this company at this point in time.

22) A simple scoring model is used to decide among three projects that we'll call A, B, and C. The total score for project A is 30, for project B is 20, and for project C is 10. Which of the following statements is BEST? A) If project A is successfully completed, it will yield three times the benefits that project C would have provided. B) If project C is chosen, the company would benefit only half as much as if they had chosen project B. C) Project C is better than project B for this company at this point in time. D) Project A is better than project B for this company at this point in time.

A) Is a method to split the weights assigned to subcriteria.

23) The pairwise comparison approach: A) Is a method to split the weights assigned to subcriteria. B) Is a method to compare pairs of hierarchies prior to any further analysis. C) Is a means of achieving all project objectives within the allocated time frame. D) May be used instead of AHP if time is limited.

D) Consists of *constructing a hierarchy of criteria and subcriteria.*

24) The first step in the Analytical Hierarchy Process: A) Requires supporting requirements to be combined into Level II challenges. B) Is analyzing the process you intend to improve before undertaking any improvement project. C) Requires Saatyfication of the team members. D) Consists of constructing a hierarchy of criteria and subcriteria.

B) AHP can be used to capture choice options that do not yield positive outcomes.

25) Which statement about the Analytical Hierarchy Process is FALSE? A) AHP scores are significant. B) AHP can be used to capture choice options that do not yield positive outcomes. C) AHP can improve the process of developing project proposals. D) AHP groups subcriteria that share the weight of a common higher-level criterion.

C) Intermediate-term cost receives a weighting of 12%.

26) The Analytic Hierarchy Process is being employed in a project selection decision. One major criteria, cost, receives a weighting value of 40%, which is split into - short term (50%), - intermediate term (30%), - long term (20%). Which of these statements is BEST? A) Short term, intermediate term, and long term must receive overall weightings that total 100%. B) There must be at least one other major criteria that has 40% weighting. C) Intermediate-term cost receives a weighting of 12%. D) Long-term cost receives an overall weighting of 80%.

A) Project A is twice as good as project C.

27) The Analytical Hierarchy Process is used to decide among three projects that we'll call A, B, and C. The total score for project A is .650, project B is .514, for project C is .321. Which of the following statements is BEST? A) Project A is twice as good as project C. B) The analysis must be incorrect because the total scores should sum to 1.00. C) The analysis must be incorrect because there are two total scores that exceed 0.50. D) The analysis must be incorrect because project C's total score is odd.

B) Risk-return pair of axes.

28) The profile model plots a graph on a(n): A) Perception-reality pair of axes. B) Risk-return pair of axes. C) Efficiency-effectiveness pair of axes. D) Saxon-Norman pair of axes.

C) A maximum return for a minimum risk.

29) The efficient frontier in project management is the set of portfolio options that offer: A) A minimum return for a minimum risk. B) A minimum return for a maximum risk. C) A maximum return for a minimum risk. D) A maximum return for a maximum risk.

B) Comparability.

3) A selection model that is broad enough to be applied to multiple projects has the benefit of: A) Ease of use. B) Comparability. C) Capability. D) Flexibility.

D) For a given level of risk, a positive move on the return axes would indicate a superior project.

30) Which statement about the use of the profile model is BEST? A) The profile model requires careful calculation of the percentage risk for each possible project. B) The scale used for the profile model can be any two numerical variables that a company deems important. C) The efficient frontier in the profile model is where return is 100% (or greater) and risk is 0%. D) For a given level of risk, a positive move on the return axes would indicate a superior project.

A) A shorter payback period than project B.

31) Between projects A and B, project A will be considered a superior financial undertaking if it has: A) A shorter payback period than project B. B) A lower average rate of return than project B. C) A lower net present value than project B. D) A longer payback period than project B.

B) $13,000 in year 1; $12,000 in year 2; $11,000 in year 3; and $10,000 in year 4

32) Net present value is being used to break the tie among four otherwise equal projects. If the interest rate is 4%, which of these anticipated four-year flows would yield the greatest net present value? A) $10,000 in year 1; $11,000 in year 2; $12,000 in year 3; and $13,000 in year 4 B) $13,000 in year 1; $12,000 in year 2; $11,000 in year 3; and $10,000 in year 4 C) $10,000 in year 1; $10,000 in year 2; $13,000 in year 3; and $13,000 in year 4 D) $11,000 in year 1; $11,000 in year 2; $12,000 in year 3; and $12,000 in year 4

C) $15,000 in year 1; $15,000 in year 2; $15,000 in year 3; and $15,000 in year 4

33) A company facing an interest rate of 8% must choose among projects offering the following four-year cash flows. If the company is employing the net present value criterion, which project should they choose? A) $25,000 in year 1; $15,000 in year 2; $10,000 in year 3; and $5,000 in year 4 B) $5,000 in year 1; $5,000 in year 2; $20,000 in year 3; and $30,000 in year 4 C) $15,000 in year 1; $15,000 in year 2; $15,000 in year 3; and $15,000 in year 4 D) $5,000 in year 1; $5,000 in year 2; $25,000 in year 3; and $25,000 in year 4

D) If net outflows follow a period of net inflows, IRR may give conflicting results.

34) Which of these statements about internal rate of return analysis is BEST? A) If the IRR is less than the company's required rate of return, the project is worth funding. B) Projects having lower IRR are generally superior to those having higher IRR. C) IRR and NPV calculations always make the same investment recommendations. D) If net outflows follow a period of net inflows, IRR may give conflicting results.

D) IRR is a more robust determinant of project viability than NPV.

35) Which of these statements about valuation models is NOT correct? A) NPV employs a weighted average cost of capital discount rate that reflects potential reinvestment. B) IRR and NPV calculations typically make the same investment recommendations only when the projects are independent of each other. C) If cash flows are not normal, IRR may arrive at multiple solutions. D) IRR is a more robust determinant of project viability than NPV.

B) $12,500 initial outlay with $10,000 cash inflows during the following five years

36) A project manager is using the internal rate of return method to make the final decision on which project to undertake. Which of these four projects has the highest internal rate of return? A) $25,000 initial outlay with $10,000 cash inflows during the following five years B) $12,500 initial outlay with $10,000 cash inflows during the following five years C) $25,000 initial outlay with $5,000 cash inflows during the following five years D) $12,500 initial outlay with $5,000 cash inflows during the following five years

D) $50,000 initial outlay with $5,000 cash inflows during the first two years, $15,000 during the third and fourth years, and $20,000 during the fifth year

37) A project manager is using the internal rate of return method to make the final decision on which project to undertake. Which of these four projects has the highest internal rate of return? A) $100,000 initial outlay with $10,000 cash inflows during the first two years, $20,000 during the third and fourth years, and $30,000 during the fifth year B) $100,000 initial outlay with a $5,000 cash inflow during the first year, $15,000 cash inflow during the second year, and $25,000 cash inflows during years three through five C) $75,000 initial outlay with a $5,000 cash inflow during the first year, increasing by $5,000 per year through the fifth year D) $50,000 initial outlay with $5,000 cash inflows during the first two years, $15,000 during the third and fourth years, and $20,000 during the fifth year

C) -$69,387

38) A project manager is using the net present value method to make the final decision on which project to undertake. The company has a 12% required rate of return and expects a 3% rate of inflation for the following four years. What is the NPV of a project that has cash flows as shown in the table? Year Cash Flow 0 -$250,000 1 $50,000 2 $60,000 3 $70,000 4 $80,000 A) -$9,762 B) -$56,859 C) -$69,387 D) -$98,780

A) 3.875 years

39) A project manager is using the payback method to make the final decision on which project to undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the following four years. What is the non-discounted payback of a project that has cash flows as shown in the table? Year Cash Flow 0 -$250,000 1 $50,000 2 $60,000 3 $70,000 4 $80,000 A) 3.875 years B) 3.625 years C) 3.750 years D) 3.500 years

C) Capability - flexible enough to respond to change

4) A project screening criterion that allows the company to compare long-term versus short-term projects, projects with different technologies, and projects with different commercial objectives is: A) Flexibility. B) Ease of use. C) Capability. D) Realistic.

C) 5.0 years

40) A project manager is using the payback method to make the final decision on which project to undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years. What is the discounted payback of a project that has cash flows as shown in the table? Year Cash Flow 0 -$100,000 1 $20,000 2 $50,000 3 $50,000 4 $25,000 5 $500,000 A) 3.4 years B) 2.6 years C) 5.0 years D) 4.2 years

D) -$122,569

41) A project manager is using the net present value method to make the final decision on which project to undertake. The company has a 15% required rate of return and expects a 5% rate of inflation for the following four years. What is the NPV of a project that has cash flows as shown in the table? Year Cash Flow 0 -$350,000 1 $50,000 2 $80,000 3 $100,000 4 $150,000 A) $4.955 B) $42,586 C) -$23,667 D) -$122,569

B) 4.1 years

42) A project manager is using the payback method to make the final decision on which project to undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years. What is the non-discounted payback of a project that has cash flows as shown in the table? Year Cash Flow 0 -$500,000 1 $50,000 2 $75,000 3 $150,000 4 $150,000 5 $750,000 A) 3.7 years B) 4.1 years C) 5.0 years D) 4.8 years

B) 4.3 years

43) A project manager is using the payback method to make the final decision on which project to undertake. The company has a 15% required rate of return and expects a 5% rate of inflation for the following five years. What is the discounted payback of a project that has cash flows as shown in the table? Year Cash Flow 0 -$500,000 1 $50,000 2 $75,000 3 $150,000 4 $150,000 5 $750,000 A) 3.9 years B) 4.3 years C) 4.6 years D) 4.1 years

B) When a company may not recover the money it invests in a project.

44) Options models are used to assist in project selection decisions: A) When IRR calculations are favorable but NPV calculations are unfavorable. B) When a company may not recover the money it invests in a project. C) When NPV calculations are favorable but IRR calculations are unfavorable. D) When a company is guaranteed to recover the money it invests in a project.

C) Be objective in their selection method.

45) Regardless of which selection method a firm uses, it should always: A) Be able to predict how much revenue will be returned to the firm each year. B) Know which project will ultimately succeed and which ones will fail. C) Be objective in their selection method. D) Use a weighted scoring technique.

D) Project portfolio management.

46) The systematic process of selecting, supporting, and managing a firm's collection of projects is called: A) Heavyweight project management. B) Matrix project organization. C) Profile management. D) Project portfolio management.

A) Regard all projects as unified assets.

47) The concept of project portfolio management holds that firms should: A) Regard all projects as unified assets. B) Manage projects as independent entities. C) Focus on short-term strategic goals. D) Focus on long-term constraints.

B) Opportunity.

48) A project with the chance for a big payout may be funded if an important criterion is: A) Cost. B) Opportunity. C) Top management pressure. D) Risk.

B) Ease of use.

5) If a model can be *applied successfully by people* in all areas and levels of an organization, it is said to possess the trait of: A) Capability. B) Ease of use. C) Flexibility. D) Realism.

D) Complementarity.

50) Evaluating projects in terms of their strategic fit with existing project lines or their ability to augment the current product family is known as: A) Balance. B) An open criterion. C) Weighted criterion. D) Complementarity.

A) The change in a project portfolio with an addition of a new project.

51) Realignment describes: A) The change in a project portfolio with an addition of a new project. B) The shifting of project resources from one to another. C) The change in strategy for a firm. D) The annual recasting of all project managers.

B) Is an integrated family of projects with a common strategic goal.

52) A proactive project portfolio: A) Is as simple as moving from one project opportunity to another project opportunity. B) Is an integrated family of projects with a common strategic goal. C) Is a collection of projects under the umbrella of single project manager carrying the title of portfolio manager. D) Is developed with respect to short-term operational concerns.

C) Out-of-sync projects and portfolios.

53) If an organization that currently is managing a vast and well-balanced portfolio of projects decides on a new strategic direction, it will initially face the problem of: A) Scarce resources. B) A conservative technical community. C) Out-of-sync projects and portfolios. D) Unpromising projects.

D) Scarce resources.

54) A principal cause of portfolio underperformance is: A) Conservative technical communities. B) Government intervention. C) Out-of-sync projects. D) Scarce resources.

A) Human and technical resources.

55) Project portfolio management is typically NOT used to balance: A) Human and technical resources. B) Risk and return. C) Efficiently run projects and nonperformers. D) Various families of projects.

C) Emphasis on quality

56) Which of these is NOT a factor in successful project portfolio management? A) Flexible structure and freedom of communication B) Low-cost environmental setting C) Emphasis on quality D) Time-paced transition

D) Improvisation by project teams.

57) Multiple project environments thrive on: A) Multi-layered bureaucracy. B) Rigid development processes. C) Narrow communication channels. D) Improvisation by project teams.

A) Has a number of low-cost experimental prototypes.

58) A firm is BEST served if its project portfolio: A) Has a number of low-cost experimental prototypes. B) Devotes significant resources to hit product "home runs." C) Aims to take the marketplace by storm regardless of future trends. D) Represents narrowly concentrated efforts.

B) Develop products with long lead times and plan ahead.

59) Successful firms use project portfolio planning routinely to: A) Make quantum jumps from one product to another. B) Develop products with long lead times and plan ahead. C) Move as quickly as possible into new territory. D) Move at glacial pace always within the same product line.

D) Cost.

6) An MBA redesign committee plans to spend a decade traveling the world to benchmark graduate programs at other universities. Regardless of the screening model being used, it will suffer from poor performance in the area of: A) flexibility. B) Capability. C) Comparability. D) Cost.

D) Flexibility.

7) Souder's model selection criterion that encourages ease of adaptation to changes in tax laws, building codes, among others, is called: A) Ease of use. B) Cost. C) Capability. D) Flexibility.

D) Subjective and inaccurate.

8) A writer estimates it will take three months to generate spiffy documents to accompany a seminal work in operations management. He grossly underestimates the time required and misses his deadline by two months. This estimate was: A) Objective and accurate. B) Subjective and accurate. C) Objective and inaccurate. D) Subjective and inaccurate.

A) Numeric and subjective.

9) A wedding planner allows $10,000 for flowers and three weeks to receive all RSVPs back from the list of 700 guests. Both estimates are correct within a fraction of a percent. We could describe this factoid as: A) Numeric and subjective. B) Numeric and objective. C) Non-numeric and subjective. D) Non-numeric and objective.

C) Desire for portfolio balance.

C) Desire for portfolio balance.

A) Realism.

When you're screening a project for selection an *effective* model must reflect organization objectives, including a firm's strategic goals and mission is called: A) Realism. B) Capability. C) Comparability. D) Ease of use.