Intro to Project Management: Project Selection and Initiation Project Selection Methods Benefit Measurement Constrained Optimization Linear Programming

What This Is

Project selection methods help organizations choose which projects to pursue, based on their potential benefits and constraints. This is crucial for successful project delivery, as it ensures that resources are allocated effectively and that projects align with strategic objectives. For example, a city planning department must decide whether to build a new bridge, upgrade an existing one, or implement a public transportation system. By using project selection methods, they can evaluate the costs, benefits, and risks of each option and make an informed decision.

Key Terms & Formulas

• Benefit Measurement: Evaluating the potential benefits of a project, such as cost savings, revenue growth, or improved efficiency.
• Cost-Benefit Analysis (CBA): Comparing the costs and benefits of a project to determine its feasibility.
• Net Present Value (NPV): The present value of a project's benefits minus its costs, discounted to the present time.
• Internal Rate of Return (IRR): The rate at which a project's benefits equal its costs, expressed as a percentage.
• Payback Period (PBP): The time it takes for a project to recover its initial investment.
• Break-Even Analysis (BEA): Determining the point at which a project's benefits equal its costs.
• Constrained Optimization: Finding the best solution within a set of constraints, such as limited resources or budget.
• Linear Programming: A mathematical technique used to solve constrained optimization problems.
• Objective Function: The mathematical formula that represents the project's goal or objective.
• Constraints: Limitations or restrictions on the project, such as budget, resources, or time.
• Decision Variables: The variables that can be changed to achieve the project's objective.
• Resource Allocation: Assigning resources to tasks or activities to achieve the project's objective.
• Resource Levelling: Smoothing out resource usage over time to avoid over-allocation or under-allocation.

Step-by-Step / Process Flow

1. Identify Project Options: List all potential projects that align with the organization's strategic objectives.
2. Gather Data: Collect data on the costs, benefits, and risks associated with each project option.
3. Evaluate Options: Use benefit measurement techniques, such as CBA, NPV, IRR, PBP, and BEA, to evaluate each project option.
4. Select the Best Option: Choose the project option that best aligns with the organization's strategic objectives and has the highest potential benefits.
5. Develop a Project Charter: Create a project charter that outlines the project's objectives, scope, and stakeholders.
6. Establish a Project Management Plan: Develop a project management plan that includes a detailed project schedule, budget, and resource allocation plan.

Common Mistakes

• Mistake: Failing to consider all project options and stakeholders.
• Correction: Conduct a thorough stakeholder analysis and identify all potential project options before evaluating them.
• Mistake: Using benefit measurement techniques without considering the project's constraints.
• Correction: Use constrained optimization techniques, such as linear programming, to ensure that the project's benefits are maximized within the constraints.
• Mistake: Failing to update the project management plan as the project progresses.
• Correction: Regularly review and update the project management plan to reflect changes in the project scope, schedule, or budget.

Exam Tips

• Tip: Be able to explain the difference between benefit measurement and constrained optimization techniques.
• Tip: Understand how to use linear programming to solve constrained optimization problems.
• Tip: Be able to identify the objective function, decision variables, and constraints in a linear programming problem.

Quick Practice Questions

1. If the NPV of a project is $100,000 and the discount rate is 10%, what is the present value of the project's benefits? Answer: $909,091 (NPV = FV / (1 + r)^n, where FV = $100,000, r = 0.10, and n = 1) Explanation: The present value of the project's benefits is $909,091, which is the NPV divided by the discount rate.

2. If the IRR of a project is 15% and the initial investment is $100,000, what is the payback period? Answer: 6.67 years (PBP = Initial Investment / IRR, where Initial Investment = $100,000 and IRR = 0.15) Explanation: The payback period is 6.67 years, which is the initial investment divided by the IRR.

3. If the CPI is 0.8, is the project under or over budget? Answer: Over budget (CPI = EV / AC, where EV = $100,000 and AC = $125,000) Explanation: The project is over budget because the actual cost is higher than the planned cost.

Last-Minute Cram Sheet

• Benefit Measurement: Evaluates the potential benefits of a project.
• Cost-Benefit Analysis (CBA): Compares the costs and benefits of a project.
• Net Present Value (NPV): The present value of a project's benefits minus its costs.
• Internal Rate of Return (IRR): The rate at which a project's benefits equal its costs.
• Payback Period (PBP): The time it takes for a project to recover its initial investment.
• Break-Even Analysis (BEA): Determines the point at which a project's benefits equal its costs.
• Constrained Optimization: Finds the best solution within a set of constraints.
• Linear Programming: A mathematical technique used to solve constrained optimization problems.
• Objective Function: The mathematical formula that represents the project's goal or objective.
• Constraints: Limitations or restrictions on the project.
• Decision Variables: The variables that can be changed to achieve the project's objective.
• Resource Allocation: Assigns resources to tasks or activities to achieve the project's objective.
• Resource Levelling: Smoothes out resource usage over time to avoid over-allocation or under-allocation.
• ⚠️ "Decomposition" breaks down work, not activities – it creates the WBS, not the activity list.
• ⚠️ "Scope creep" occurs when the project scope changes without updating the project management plan.
• ⚠️ "Scope statement" outlines the project's objectives, scope, and deliverables.