Top Project Selection Methods for Project Managers

When choosing a project, many different types of methodologies can be applied. But which method is the best? If you do not know, you will make some mistakes in selecting your project. This article will tell you about project managers' top selection methods.

Benefit/cost ratio

This method compares the expected benefits with costs to determine whether a project should be accepted or rejected. The benefit/cost ratio is calculated by dividing the dollar value of benefits by the dollar value of costs.

The higher this ratio, the more attractive a project becomes because it offers more benefits than costs. However, this method does not consider factors such as risk and time involved in completing a project successfully.

Benefit measurement methods

Benefit measurement methods compare a project's future performance against some standard and determine how better or worse the new project will perform than the old one. These measurements can be either qualitative or quantitative, depending on the standard type (e.g., benchmarking).

Net present value

The net present value (NPV) method is a commonly used tool for project selection because it helps you compare projects with different cash flows over time (like those with costs in the future).

The NPV calculation uses a discount rate to determine how much money a project needs to earn to be profitable. The higher the discount rate, the less you will be able to spend today and still make more money in the future.

Payback period

The payback period method is another common way of comparing projects. However, it assumes that all cash flows happen at the end of the investment period, so it doesn't account for inflation or other factors that change over time (like interest rates).

Three Point Estimating Techniques

Three-point estimating is a technique used to calculate a project's cost, schedule, and resource requirements.

It uses three values representing the best case, most likely, and worst-case scenarios. The most probable value is taken as the most reasonable estimate.

Internal rate of return

This is a discounted cash flow method that calculates how much money would need to be invested today, with an interest rate equal to the opportunity cost of capital (i.e., discount rate), such that there would be enough cash flow generated at some future date to pay back this initial investment plus all other costs incurred up till now (i.e., reinvestment).

Earned Value Analysis (EVA)

EVA is a process improvement method that uses variance analysis to identify project problems and improve performance. EVA is commonly used in business, especially in construction, engineering, and IT projects.

Opportunity cost

Opportunity cost refers to the price of the last opportunity to pursue another one. Project managers must consider opportunity costs when making decisions about their projects because it can be difficult to foresee all the potential consequences of their choices at the outset.

Decision Trees

The decision trees project selection method is based on the binary tree structure. It considers all possible combinations of projects and then ranks them by their net present value (NPV).

Decision trees are used in many applications, including finance and artificial intelligence. In project selection, they are a tool for analyzing trade-offs between various investments.

In addition, they can be used to evaluate multiple projects or to explore a single project as it changes over time.

Project Priority Index (PPI)

The project priority index (PPI) is a relative ranking of projects that can be used to decide project selection. It is based on the concept of weighted attribute scoring, where each project's attributes are rated on a scale of 1 to 5, with 5 representing the most important and 1 representing the least important.

The PPI is calculated by taking the sum of all weighted attributes and dividing it by the sum of all weights. The higher the resulting percentage, the more critical the project is considered to be.

Conclusion

There are so many ways to select projects that, hopefully, you can be inspired to take all of them into serious consideration. Mapping out the entire project life cycle and identifying the cost of failure is a great way to get a macro view of your project and prioritize it within your organization. Establishing trust through open communication rules helps you meet more deadlines and deliver better results. Finally, determining your project's criteria for success lets you focus on what matters most for your organization by prioritizing key outcomes.