This document discusses various methods for selecting projects, including focusing on broad organizational needs, categorizing IT projects, financial analysis using models like net present value, payback period and return on investment, and non-financial analysis using weighted scoring and balanced scorecard. Financial analysis methods calculate costs and benefits to determine if projects meet required rates of return, while non-financial methods allow consideration of additional strategic criteria through scoring and alignment with organizational objectives.

1. Project
Selection
Methods

2. Not all project proposals make it
to initiation

3. Every project idea isn’t progressed.
Why?

4. Time
Money
Focus

5. Methods for selecting projects include:
- Focusing on broad organizational needs
- Categorizing IT projects
- Financial analysis
- Using a weighted scoring model
- balanced scorecard
- Strategy mapping

6. Focusing on Broad Organizational
Needs
– E.g. Non-financial, but important
benefits
– Three important criteria:
• need for the project
• funds available for the project
• will to make the project succeed

7. Categorizing IT Projects
– Does the project provides a response to:
•a problem
•an opportunity
•a directive
– The time and date of expected
completion
– The overall priority of the project

8. Financial Analysis
$$$
Net Present
Value
Net Present
Value
Payback modelPayback model
Return on
Investment
Return on
Investment
(there are more)(there are more)

9. Financial Analysis
$$$
Net Present
Value
Payback model
Return on
Investment
(there are more)

10. Net Present
Value
Net Present Value (NPV) Model
Uses management’s minimum desired rate-
of-return (discount rate) to compute the
present value of all net cash inflows
positive NPV: the project meets the
minimum desired rate of return and is
eligible for further consideration
negative NPV: project is rejected
Net Present Value (NPV) Model cont’d…
NPV Calculations
determine estimated costs / benefits for
the life of the project and products it
produces
determine discount rate (ask
organization)
calculate the NPV
some organizations consider the
investment year as year 0, others
consider it year 1
some organizations enter costs as
negative numbers, others do not (ask
organization)

11. Payback model
Figure 4.1 Charting the Payback Period
(Schwalbe, 2006, p129)
Measures the time it will take to recover
the project investment
Shorter paybacks are more desirable
Payback occurs when cumulative
discounted benefits and costs are
greater than zero
Limitations of payback:
• ignores the time value of money
• assumes cash inflows for investment
period only
• does not consider profitability

12. Return on
Investment
Return on Investment (ROI)
Calculated by subtracting project
costs from the benefits and then
dividing by the costs
Formula:
ROI = (total discounted
benefits –
total discounted costs) /
discounted costs
Higher the ROI, the better. Many
organizations have a set or
minimum rate of return on
investment projects
(total discounted benefits –
total discounted costs)
discounted costs

13. Non-financial Analysis
$$$
Weighted
scoring model
Balanced
Scorecard

14. $$$
Weighted
scoring model
A weighted scoring model is a tool
that provides a systematic process for
selecting projects based on many
criteria
– Steps in identifying a weighted scoring
model:
• identify criteria for project selection
• assign weights (%) to criteria add up to (100%)
• assign scores to each criteria for each project
• multiply scores by weights to get total scores
– The higher the weighted score, the
better
$$$

15. $$$
Balanced
Scorecard
•Balanced Scorecard
– Robert Kaplan and David Norton developed this
approach to help select and manage projects
that align with business strategy
– Methodology that converts an organization’s
value drivers, such as customer service,
innovation, efficiency, and financial
performance, to a series of defined metrics $$$