Project Management (MGT 450) Chapter 3

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?

$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

Your university is considering two projects to increase enrollment: offering traditional classes from midnight to 6 a.m. or offering house call classes where the professor would visit your home to provide instruction. Use a simple scoring model with at least three criteria to evaluate these two potential projects and indicate which project should be chosen.

Answers may vary widely. A simplified scoring model ranks criteria according to their relative importance. Each project is evaluated for performance on each criterion and an overall score for each project is computed by summing the products of each score times its weight. A simple scoring model might be as follows with House Calls narrowly edging out Midnight Classes. Cost 4 Efficiency 3 Effectiveness for Students 3 The traditional classes from midnight to 6 AM should be chosen. This will cost less than having professors spending one-on-one time with students, which would drastically increase professors salaries/billing. It is also less efficient (and cost more) for professors to spend all of the time driving around town to each student's house. Although one-on-one is probably more effective for students, it has lower scores in the other two categories. This means that traditional classes should be chosen.

Regardless of which selection method a firm uses, it should always:

Be objective in their selection method.

The first step in the Analytical Hierarchy Process:

Consists of constructing a hierarchy of criteria and subcriteria.

A project that is exceptionally risky might still be undertaken by a firm if they have several other projects underway that are considered more of a sure thing. This approach to project selection is BEST described by the criterion called:

Desire for portfolio balance.

In the project portfolio selection process, the preprocess phase is likely to involve:

Determining selection methodologies and guiding strategic principles for project evaluation.

A commercial factor in project selection and screening might be:

The long-term market dominance.

A checklist screening model does NOT consider:

Whether one criterion is more important than another.

The ________ phase of the portfolio selection process involves steps such as prescreening, individual project analysis, and portfolio adjustment.

process

The present value of money is lower the further out in the future I expect to spend it.

False

The efficient frontier in project management is the set of portfolio options that offer:

A maximum return for a minimum risk.

A proactive project portfolio:

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

Describe the use of a profile model and sketch an example, clearly labeling every component and the best alternative in your example.

Profile models allow managers to plot risk/return options for various alternatives and then select the project that maximizes return while staying within a certain range of minimum acceptable risk. The profile model makes use of a concept known as the efficient frontier-the set of project portfolio options that offers either a maximum return for every given level of risk or the minimum risk for every level of return. A profile model appears below.