Here are the key financial performance metrics that are commonly used to evaluate projects and make investment decisions: - Net Present Value (NPV) - The present value of the future net cash flows from an investment minus the cost of the investment. It takes the time value of money into account. A positive NPV means the projected returns from the investment exceed the required rate of return and it should be accepted. - Internal Rate of Return (IRR) - The discount rate that makes the NPV of all cash flows from a particular project equal to zero. It measures the efficiency or profitability of an investment. The higher the IRR, the more desirable the investment. IRR should be compared to the required rate of return or cost

1. Designing
Alternate Solutions
How to find solutions that meet your requirements

2. Three Philosophical Statements
2

3. Problem/Symptom/Solution
Analysis
3
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4. Expanding Solution Alternatives
1 2 3 4 5 6
Status C C P P ?
A P P P
B
C P C P
D P C

5. Improving Solution Coverage
Merge solutions to Develop pros
address multiple and cons of
problems/symptoms each solution
Tweak the selected
solutions
2 to improve them

6. Macro-level Solution Alternatives

7. Evaluating Solution
Exercise:
Alternatives
Strategic High Medium Low
Value
Uniqueness
High
Medium
Low
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8. Decision Analysis Defined
“Decision analysis is an approach to
decision-making that examines and
models the possible consequences of
different decisions. Decision analysis
assists in making an optimal decision
under conditions of uncertainty. ”

9. Decision Analysis Defined
“Decision analysis (DA) is the discipline comprising
the philosophy, theory, methodology, and professional practice
necessary to address important decisions in a formal manner.
Decision analysis includes many procedures, methods, and tools for
identifying, clearly representing, and formally assessing important
aspects of a decision, for prescribing a recommended course of action
by applying the maximum expected utility action axiom to a well-
formed representation of the decision, and for translating the formal
representation of a decision and its corresponding recommendation
into insight for the decision maker and other stakeholders.”

10. Decision Analysis Defined
“Decision analysis is
an excuse for making
the right decision.
”
0
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11. Decision-making Approaches
Consultative Democratic Consensus
Directive
RISKS RISKS RISKS RISKS
Requires Only decision- Win-lose Time required
absolute maker Minority Facilitation skills
authority accountable disenfranchised Potential for
Fosters Fosters “Yes- Active resistance gridlock
dependence man” mentality
RECOMMENDED USES RECOMMENDED USES
RECOMMENDED USES RECOMMENDED USES
Large groups Individual
Emergency Deadline driven commitment
situations Individual
Potential for commitment required
Need for speed stalemate irrelevant Buy-in essential
Need for secrecy Highly
interdependent
group

12. Exercise: What Are You?
For decision analysis to succeed, the decision
must be clearly articulated and known by all
decision-makers.
Create a decision statement for the Blue
Pacific Airways project.

13. Decision Analysis Toolkit
Decision Tables / Trees
Grid Analysis
Pareto Analysis
Cost/Benefit Analysis
ROI Analysis
Weighted Tables
Weighted Multi Voting
Delphi Technique (Expert Opinions)
Force Field Analysis
SWOT Analysis
Paired Comparison Analysis
Fishbone Analysis (Ishikawa diagrams)

14. Decision Trees
Consider these
statements: Do Action X
If A and C are true, do X; T
but if C is false, do Y. C F
If A is false, check B. Do Action Y
If B is true, do Z. T
A F T Do Action Z
B
F
??

15. Exercise: Decision Tables
Fill in the rules part of the table on the next page.
This real business rule defines the actions that can occur with
respect to a loan application.
The loan decision depends on the following:
If the current debt load plus the request is greater than 4 times their
gross income, then deny the loan unless their credit is excellent and they
have been on the same job for over 5 years. If this is the case, approve
the loan but request a co-signer. If the total new debt is less than 4 times
their gross income, and their credit is excellent or good, approve the
loan. If they only have good credit and have been in their current job
less than 5 years, approve with a co-signer. Otherwise, deny the loan.

16. Worksheet: Decision Tables
Decision Conditions
Debt + Req < 4 * Income T T T T T T T T F F F F F F F F
CR = Excellent T T T T F F F F T T T T F F F F
CR = Good T T F F T T F F T T F F T T F F
Same Job 5 years T F T F T F T F T F T F T F T F
Actions Rules
Deny Loan
Approve Loan
Co-signer Required

17. Force Field Analysis
Strength Strength
100 Force 1 Force 4 15
3 Force 2
50 Force 3
Factors supporting the change Factors opposing the change

18. Paired Comparison Analysis
Identify a set of criteria that distinguish the solutions.
Weight the criteria by their relative importance.
Create a matrix listing potential solutions
as rows and criteria as columns.
Select a group of participants with the knowledge and authority to
make decisions and assign each participant a vote (potentially
weighted).
For each criteria, compare each solution with each other solution and
allow the group to select the better of these two (ignoring all other
options).

19. Paired Comparison Analysis
Example
Cost Short1 Long2
(5) (3) (1)
Solution 1
Solution 2
Solution 3
Solution 4
Solution 5
Solution 6
1Short = Benefits that will be realized within 3 months of implementation
2Long = Long-term benefits

20. Symptoms of Solved Problems
Are Benefits
P. People who use the Eisenhower Tunnel forget to turn
off their lights.
S. The cops and other officials are wasting their time
helping tourists get their car started.
S. Tourists are upset because their car won’t start.
S. A lot of cars in the parking lot have their lights on.
Problems and Symptoms are starting points for Cost/Benefit analysis.
Additional benefits need to be brainstormed.

21. Categories of Benefits
(mathematically measurable, left-brain focus)
Cash Flow Impact
Return on Investment

22. Categories of Benefits
(touchy-feely stuff, right-brain focus)
External
(Corporate image,
brand awareness, etc.)
Without emotions, no decision is possible.
Internal
(employee satisfaction,
future potential, etc.)

23. Exercise: Vision Statement
BP Air would like to expand its customer service from traditional phone and in-person to
create a customer web site. This expansion would allow customers to manage aspects of
their travel from reserving a flight to baggage retrieval at their final destination. As a plus
service, we would like to help our customers book lodging and ground transportation from
our secure internet site. book flights; make changes to existing flights, check-in and print
boarding passes.
Our expectations are that this project will:
• Lower Customer Service inbound calls (or at least shorten the calls)
• Increase customer Check-in efficiency
• Improve overall customer satisfaction
• Reduce the current cost of Reservations sales
• Increase Customer Retention by making it easy for customers to sign up for our
rewards program online
This project will encompass all work related to developing and provisioning the online
reservation “booking” system for BP customers. However, it cannot involve any
modifications or updates to the current airline database system. Also, it must interact with
the database modernization project team to ensure compatibility.
Finance wants immediate full payment (or at least a 20% deposit) for flights booked online
0
that accounts for all applicable taxes and service charges imposed by government,
governmental agencies, airports, etc.
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24. Exercise: Blue Pacific Airways
Project Benefits
Working in groups, identify benefits to
justify the project on the opposite page.
Divide your list of benefits into
“Tangible” and “Intangible” benefits.
1
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25. Early Project Estimating
Points Based Estimates

26. The SWAG Estimate
Don’t laugh. The tatistical ild natomical uess can provide
excellent early project estimates.
A team member with relevant experience
Two estimates, based on similar projects
Step 1. Understand the project
Step 2. Make a Lowest feasible estimate
Step 3. Make a Highest reasonable estimate
Step 4. Document your assumptions
SWAG’ing without relevant experience or understanding of the project.

27. What to Estimate
Value Tangibles
Operating Expense
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28. Cost/Benefit Analysis Factors
0
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29. Net Cash Flow Example
Years 0 1 2 3 4 5
Revenue $0 $0 $2m $5m $9m $13m $29m
Cost ($9m) ($3m) ($.5m) ($.4m) ($.3m) ($.3m) ($13.5m
)
Net Cash ($9m) ($3m) $1.5m $4.6m $8.7m $12.7m $15.5m
Flow
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30. Simple Return on Investment
(ROI)
Years 0 1 2 3 4 5
Revenue $0 $0 $2m $5m $9m $13m $29m
Cost ($9m) ($3m) ($.5m) ($.4m) ($.3m) ($.3m) ($13.5m
)
Net Cash ($9m) ($3m) $1.5m $4.6m $8.7m $12.7m $15.5m
Flow
The simple ROI is the ratio of net cash flow divided by the
initial investment. What is the simple ROI for this project?
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31. Simple Payback Calculation
Years 0 1 2 3 4 5
Revenue $0 $0 $2m $5m $9m $13m $29m
Cost ($9m) ($3m) ($.5m) ($.4m) ($.3m) ($.3m) ($13.5m)
Net Cash ($9m) ($3m) $1.5m $4.6m $8.7m $12.7m $15.5m
Flow
The simple payback (aka: break-even point) is the period of
time required to recover the original investment. What is the
simple payback for this project?

32. Internal Rate of Return (IRR)
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33. Financial Performance Metrics:
A Research Assignment