SDC
u
Ô
á
u
|
Project Management - 3.2
Components of the appraisal and
selection process
!"
Checklists method
Weighted scoring method
Cost-Effectiveness Analysis
SDC
Project Management - 3.3
# $
!"
Review of engineering economic
analysis
Equivalent worth methods
Internal Rate of Return
Benefit-Cost analysis
Payback-period method
Break-even analysis
%
& ' !&u
SDC
Project Management - 3.4
()$*()()+,
ë Avraham, Sections 2.1 ± 2.5; 3.1±3.5
SDC
Project Management - 3.5
*,,))()+,
SDC
Project Management - 3.6
')-(.
SDC
Project Management - 3.7
/
ë
-A quick and inexpensive exercise
-Proposed projects are analyzed based on
the most prominent criteria or prevailing
conditions
SDC
Project Management - 3.9
ë )
SDC
Project Management - 3.10
ë u
-Assess and rank the project against
other competitive projects
-Relative strength and weakness of
each competitive project are examined
carefully
SDC
Project Management - 3.11
ë u 0
&
-In cases where projects compete for
the same resources
-Determines the best way to allocate
available resources among the projects
including the on-going and the newly
selected ones.
SDC
Project Management - 3.12
-Identify the criteria or set of
requirements
-Develop scoring scale to measure each
project against each criterion
-Identify cut-off point (threshold value)
-Rank the projects
SDC
Project Management - 3.14
M
á
ur fit ilit Ti t l t rci l
rk t risks s cc ss
c r T t l
ur ct ¦ ¦ ¦ ¦ ¦
¦
ur ct ¦ ¦ ¦
ur ct ¦ ¦ ¦ ¦
"
:
Consider several criteria in the decision
process
"
:
Assume all criteria are of equal
importance
SDC
Project Management - 3.16
-!"
!"
Assign weight reflecting the relative
importance Wj to each individual
criterion j
n
W j ·1
j·1
SDC
Project Management - 3.17
SDC
Project Management - 3.18
SDC
Project Management - 3.19
"
:
Consider the trade-off among the
criteria
"
:
rely on arbitrary scoring system.
SDC
Project Management - 3.20
# 1
100
&
SDC
Project Management - 3.22
SDC
Project Management - 3.23
M
SDC
Project Management - 3.25
ë Cash flow:
á
: receipts/savings (revenues, etc. )
SDC
Project Management - 3.26
ë |
: expressed by the
consumer index (buying power of the
money)
ë |
: resulted from a contract
between a borrower and a lender
SDC
Project Management - 3.28
# 3 1
"
0
á
: the interest charge for
any period is based on the remaining
principal to be re-paid plus any accumulated
interest charges up to the beginning of that
period.
SDC
Project Management - 3.29
Notation:
i = MARR (0<i<1)
n = number of compounding periods
P = present value
= future value
A = annuity
SDC
Project Management - 3.30
#
4 5
" " !0 "
"
0 646
"
SDC
Project Management - 3.31
(F/P, i, n) · (1 o i) n
SDC
Project Management - 3.32
SDC
Project Management - 3.33
## )7
!!"
SDC
Project Management - 3.34
1
Annual equivalent AV
AV NPV * (A/P, i, n)
SDC
Project Management - 3.35
$
0
AV > 0
SDC
Project Management - 3.36
$
2
0
*
+u
Choose the project with the largest NPV
(assuming it is positive)
In case of comparing projects of different
life duration, repeatability must be assumed
and NPV¶s are calculated & compared on a
common hypothetical life time
SDC
Project Management - 3.37
SDC
Project Management - 3.38
M
Machine
A B
Initial Cost 20,000 30,000
Ôife 5 years 10 years
Salvage value 4,000 0
Annual receipts 10,000 14,000
Annual 4,400 8,600
disbursem ents
MARR = 15%
Assum e 10 year study period and repeatability
SDC
Project Management - 3.39
*
SDC
Project Management - 3.40
#%
( 0(
8((9
!"
SDC
Project Management - 3.41
1
SDC
Project Management - 3.42
-Suppose:
NPV (I) = a >0
NPV (I+5%) = -b <0
Then
5a
I
o i
a o b
SDC
Project Management - 3.43
M
i
I iti l t ,
Lif r
l l ,
l i t
,
l ir
t ,
SDC
Project Management - 3.44
$
0
SDC
Project Management - 3.45
$
2
0
SDC
Project Management - 3.46
SDC
Project Management - 3.47
M
c i
I iti l c st , , , ,
if rs rs rs rs
l , , ,
l
l , , , ,
rci ts
l , , , ,
is rs
ts
t l , , , ,
c s fl
I
SDC
Project Management - 3.48
|
|
' '
'
ÿIstt , , , ,
ÿ l , -, ,
ÿ(t , -, , ,
l
c s fl )
ÿI
SDC
Project Management - 3.49
SDC
Project Management - 3.50
0)7
!
!"
"((!"
)7
!!"
"
:
Focus attention on quantity of money
Common and easy
SDC
Project Management - 3.51
"
:
-Depend on (subjective) estimate of MARR
-Difficult to interpret
-Ignore the scales of projects
-Difficult to use for projects with different life
times
SDC
Project Management - 3.52
((
"
Independence of MARR choice
Easy to interpret
Can be applied for projects with different life
times
"
Difficult to calculate
SDC
Project Management - 3.53
#: 3
0;1
&
1
Total Benefit P [B]
B/C = = or
Total Cost P [CR + (O + M)
B
B/C =
CR + (O + M)
"0"
More popular with governmental agencies
P [B - (O + M)]
B/C = or
P (CR)
B - (O + M)
B/C =
CR
SDC
Project Management - 3.55
0
""
SDC
Project Management - 3.56
(
2
0
SDC
Project Management - 3.57
#: u & 2
2 "!"
SDC
Project Management - 3.58
SDC
Project Management - 3.59
#< 3 2
2
&
SDC
Project Management - 3.61
M
SDC
Project Management - 3.62
Other factors:
SDC
Project Management - 3.63
SDC
Project Management - 3.64
SDC
Project Management - 3.65
½
If we know all w¶s and P¶s, then the
overall scores of the projects are
calculated by weighted scoring method,
e.g.
SDC
Project Management - 3.66
u :
SDC
Project Management - 3.67
u 1
"="
>
Assess the relative importance of
criteria (P, R, S, T)
Scale:
Equally important: 1
Weakly more important: 3
Strongly more important: 5
Demonstratedly more important: 7
Absolutely more important: 9
SDC
Project Management - 3.68
M
Õ
/
/ /
/ / /
SDC
Project Management - 3.69
á
Example If P:R=4, R:S=3
Then P:S = 12
A reciprocal matrix is consistent if and
only if
umax = n (number of rows)
á
:
u - n
ax
C.I.
n -1
SDC
Project Management - 3.70
SDC
Project Management - 3.71
SDC
Project Management - 3.72
& ' !&u 8'u9
SDC
Project Management - 3.73
M (cont.)
0.56
0.25
0.14
0.05
.
/ .
/ / .
/ / / .
1 . . . .
u max 4.36
4 . . . .
. -
I · · .
SDC