SE-868: Software Project Management

Assistant Professor Dr. Mehwish Naseer

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Agenda
 Introduction
 Project decisions
 Types of project selection models
 Criteria for choosing project model
 The nature of project selection models
 Numeric and Non-numeric models

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Introduction
 Project selection is the process of choosing a
project or set of projects to be implemented by
the organization. Since projects in general
require a substantial investment in terms of
money and resources, both of which are limited,
it is of vital importance that the projects that an
organization selects provide good returns on the
resources and capital invested.
 Project decisions can impact every business
stakeholder, including customers, employees,
partners, regulators, and shareholders. A
sophisticated model may be needed to capture
strategic suggestions. 4
Introduction
 Project decisions typically produce many
different types of impacts on the
organization.
 Making good decisions requires not just
estimating the financial return on
investment; it requires understanding all of
the ways that projects add value.
 A more sophisticated model is needed to
account for all of the different types of
potential impacts that project selection
decisions can create.
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Project Decisions
 Project selection is the process of evaluating
individual projects or groups of projects, and
then choosing to implement some set of them so
that the objectives of the parent organization will
be achieved.
 This same systematic process can be applied to
any area of the organization’s business in which
choices must be made between competing
alternatives.

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Project Decisions
 Each project will have different costs, benefits,
and risks. Rarely are these known with certainty.
 We will discuss several techniques that can be
used to help senior managers select projects.
Project selection is only one of many decisions
associated with project management.
 To deal with all of these problems, we use
decision aiding models.

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 Criteria for Choosing Project
Model
 When a firm chooses a project selection model,
the following criteria, are most important:
 Realism- The model should reflect the reality of
the manager’s decision situation, including the
multiple objectives of both the firm and its
managers. Without a common measurement
system, direct comparison of different projects is
impossible.
 The model should also include factors that reflect
project risks, including the technical risks of
performance, cost, and time as well as the
market risks of customer rejection and other
implementation risks. 8
 Capability- The model should be sophisticated
enough to deal with multiple time periods,
simulate various situations both internal and
external to the project (for example, strikes,
interest rate changes), and optimize the decision.
 Flexibility- The model should give valid results
within the range of conditions that the firm might
experience. It should have the ability to be easily
modified, or to be self-adjusting in response to
changes in the firm’s environment.
 Ease of Use- The model should be reasonably
convenient, not take a long time to execute, and
be easy to use and understand.
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 Cost- Data gathering and modelling costs
should be low relative to the cost of the
project and must surely be less than the
potential benefits of the project.

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The Nature of Project Selection
Models
 There are two basic types of project selection
models, Numeric and Non-numeric.
 Both are widely used. Many organizations
use both at the same time, or they use
models that are combinations of the two.
 Non-numeric models, as the name implies, do
not use numbers as inputs.
 Numeric models do, but the criteria being
measured may be either objective or
subjective
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Types of Project Selection
Models
 Of the two basic types of selection models
(numeric and nonnumeric), nonnumeric
models are older and simpler and have only a
few subtypes to consider. We examine them
first.

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Non-Numeric Models
 The Sacred Cow- In this case the project is
suggested by a senior and powerful official in the
organization. Often the project is initiated with a
simple comment such as, “If you have a chance,
why don’t you look into . . .,”. The immediate
result of this bland statement is the creation of a
“project” to investigate whatever the boss has
suggested. The project is “sacred” in the sense
that it will be maintained until successfully
concluded, or until the boss, personally,
recognizes the idea as a failure and terminates it.
 Capability- If a flood is threatening the plant, a
project to build a protective dike (dam) does not13
 The Competitive Necessity- Necessity to
develop the project is justified.
 The Product Line Extension- In this case, a
project to develop and distribute new products
would be judged on the degree to which it fits
the firm’s existing product line, fills a gap,
strengthens a weak link, or extends the line in a
new, desirable direction.

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 Comparative Benefit Model - For this
situation, assume that an organization has many
projects to consider, perhaps several dozen.
Senior management would like to select a subset
of the projects that would most benefit the firm.
The organization has no formal method of
selecting projects, but members of the selection
committee think that some projects will benefit
the firm more than others, even if they have no
precise way to define or measure “benefit.”

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 Q-Sort Model- Of the several techniques for
ordering projects, the Q-Sort is one of the most
straightforward. First, the projects are divided
into three groups good, fair, and poor according
to their relative merits. If any group has more
than eight members, it is subdivided into two
categories, such as fair-plus and fair-minus.
When all categories have eight or fewer
members, the projects within each category are
ordered from best to worst. Again, the order is
determined on the basis of relative merit. The
rater may use specific criteria to rank each
project, or may simply use general overall
judgment. Projects can then be selected in the
order of preference, though they are usually16
Capital Budgeting

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Numeric Methods/Evaluation
Techniques

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Non-discount techniques
Payback Period Method

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Payback Period Method

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Payback Period Method

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Payback Period Method

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Payback Period Method

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Payback Period Method

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Payback Period Method

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Average Rate of Return (ARR)

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Average Rate of Return (ARR)

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Average Rate of Return (ARR)

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Average Rate of Return (ARR)

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Average Rate of Return (ARR)

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Average Rate of Return (ARR)

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Discounted techniques
Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Net Present Value (NPV)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Internal Rate of Return (IRR)

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Profitability Index (PI)

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Profitability Index (PI)

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Profitability Index (PI)

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