PJM310 Colorado State University Potential Risks Rewards & Costs Discussion

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Business Finance

Please respond to the 2 separate discussion post below with 150 – 200 words each with 1 APA in text citation.

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  • Chapter 2 in Project Management: A Strategic Managerial Approach
  • Chapter 2 PowerPoint from Project Management: A Strategic Managerial Approach
  • Oueslati, A. (2016). The added value of the project selection process. Journal of Defense Resources Management, 7(1), 75-84.

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Hello,

In the project selection process, it is important to identify and quantify all of the potential risks, rewards, and costs for the project, with ROI potentially being one of (but not the only) quantitative ways to measure the profitability reward of the project. Since there are many other potential rewards a project may provide, relying only on one quantitative measure is extremely short sighted and potentially dangerous. Solely relying on ROI (Return on Investment) for the project selection process is tantamount to relying solely on MPG when buying a car. There are so many other factors to consider when deciding whether or not a project will be a “win” for the organization. The project selection process typically involves valuating projects based on two different models, the Numerical model, and the Non-numerical model. ROI is part of the Numerical model and as such, only gives the decision makers one metric of many on which to make a big decision. As Oueslati (2016) explains, “It is important to remember that the qualities of a project may be represented by numbers, and that subjective measures are not necessarily less useful or reliable than objective measures.”

Rather than relying solely on ROI, organizations should consider other numerical models such as Net Present Value (the current value of the project) and Discounted Cash Flow (Returns discounted for required rate of return and Net Present Value). These models tend to give a more accurate picture of the profitability of a project.

Non-Numerical Models should also be considered in conjunction with numerical models. As Guzman (2017) surmises, “return on investment models, which provide an exclusively financial measure, fail to describe the intangible aspects of an opportunity.” Many other positives for a project may exist beyond financial ones. Solely relying on one particular numerical model is just bad business.

References

Guzman, O. (2017, November 21). Strengths & Weaknesses of Return on Investment. Retrieved from https://smallbusiness.chron.com/strengths-weakness…

Oueslati, A. (2016). The added value of the project selection process. Journal of Defense Resources Management, 7(1), 75-84.

Hello Everyone:

When selecting a project analyzing your return on investment is usually at the top of the list for items to be considered but it should not be the only one. Return on investment models are powerful albeit incomplete tools for analyzing and evaluating opportunities. It’s often advised to use multiple ROI models to gain a more complete understanding of a financial opportunity. While ROI models use expected cash flows and costs in their calculations, they do not factor in the likelihood those returns and costs will match predictions. Return on investment models, which provide an exclusively financial measure, fail to describe the intangible aspects of an opportunity.

You need to identify all of the productive directions you might take and then select your project according to a consistent, rational, and objective process (Andrews, n.d.). The project selection team should consider whether the project aligns with the organizational strategy of the company, assess their resources, asses their organizational capacity and feasibility to name a few. Typical non-financial criteria include market share, putting in place barriers to market entry, reducing reliance on suppliers and to provide for community development or support. (Whitaker, 2013). Non-profit, health, and the Olympic games are examples of organizations having non-financial criteria to help in their decision-making process about which projects they undertake.

There are two basic types of project selection models, numeric and nonnumeric. Both are

widely used. Many organizations use both at the same time, or they use models that are

combinations of the two. Nonnumeric 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. It is important to remember that the qualities of a project may be represented by numbers, and that subjective measures are not necessarily less useful or reliable than objective measures.

References

Andrews, B. (n.d.). Project Selection: 5 Things Every Organization Should Consider. Retrieved from https://www.bigskyassociates.com/blog/project-sele…

Whitaker, S. (2013, April 27). Choosing the Right Projects. Retrieved from http://seanwhitaker.com/choosing-the-right-project…