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Description
Flashcards by Lukas Berger, updated more than 1 year ago
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Created by Lukas Berger
over 7 years ago
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| Question | Answer |
| What do Screening models do? | help managers pick th best projects from a pool of projects -they are numeric or nonnumeric |
| Criteria screening models should have: | Doable Capability Flexibility easy to use Cost effectiveness Comparability |
| 4 Screening & Selection Issues: | • Risk – unpredictability to the firm • Commercial – market potential • Internal operating – changes in firm ops • Additional – image, patent, fit, etc |
| models to decide for Project Screening: | • Checklist • Simple scoring models • putting proects in an order • Profile models • Financial models |
| What is a Checklist Model and why is it important? | A checklist is a list of criteria applied to possible projects. Checklists are important to decide which project fits best to the chosen criteria |
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Simple Scoring Models
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Each project receives a score that is the weighted sum of its grade on a list of criteria |
| 4 steps of Analytic Hierarchy Process: | 1. Construct a hierarchy of criteria and subcriteria 2. Allocate weights to criteria 3. Assign numerical values to evaluation dimensions 4. Scores determined by summing the products of numeric evaluations and weights scores are comparable |
| Profile Models | Show risk/return options for projects. Requires: • Criteria selection as axes • Rating each project on criteria |
| Financial Models | Based on the time value of money principal All of these models use discounted cash flows |
| Payback Period |
Determines how long it takes for a project to reach a
breakeven point.
Cash flows should be discounted
Lower numbers are better (faster payback)
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| A project requires an initial investment of $200,000 and will generate cash savings of $75,000 each year for the next five years. What is the payback period? |
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| Net Present Value projects the change in the firm’s stock value if a project is undertaken. |
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| Portfolio management requires: | decision making prioritization review realignment reprioritization |
| 3 Keys to Successful Project Portfolio Management: | Flexible structure Low-cost Time-paced |
| What are the benefits and drawbacks of project checklists for screening alternatives? | Project Checklists are easy to use, based on a simplistic visual model with a basic scoring system. Using a checklist enhances the input and discussion during the screening process. Unfortunately, the model also has its shortcomings. The two most significant are the subjectivity of the rating system and the lack of a weighting system. The weighting system is important in establishing trade-offs between criterion. |
| What are the benefits and drawbacks of the profile model for project screening? Be specific about the problems that may arise in identifying the efficient frontier. | The Profile Model is beneficial because it clearly outlines the relationship between risk and return of project alternatives. It also establishes a threshold for eliminating or qualifying projects. On the other hand, it may not be as effective for selecting alternatives because it limits discriminating criteria to risk and return only. Additionally, it can be difficult to accurately quantify risk. . |
| How are financial models superior to other screening models? How are they inferior? | Financial models are superior to screening models in that they link project alternatives to financial performance. The results of financial models are non-subjective meaning they are not subject to individual interpretation (10% return means 10% return regardless of who is looking at it). Therefore, it becomes easier to compare the benefits of one project alternative versus another. The models do have some drawbacks. Due to the required information in determining NPV and IRR, it may be difficult to make long-term estimates accurately |
| What are some of the key difficulties is successfully implementing portfolio management practices? | -The staff can get into conflict with top management - investment in projects that do not fall inline with portfolio priorities - project portfolio management may fail due to a lack of resource |
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