MANAGEMENT
Lesson 3
Portfolio Management
Class objective
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Realistic project selection model
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Adaptable (capability) project selection model
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Flexible project selection model
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Easy to use project selection model
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Cost-effective project selection model
• Cheap to use
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Objective project selection model offering
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NON-FINANCIAL SELECTION
MODELS
Non-Financial selection models
• Checklist Model
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Checklist Model
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Checklist Model
• Examples of criteria:
Corporate objectives Criteria
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Checklist Model
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3 and 4 ?
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Simplified scoring model
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Simplified scoring model
• Methodology:
• Identify criteria
• Assign importance weight
• Assign score values to each criteria
• Weight x Score
• Add weighted score
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Identify criteria and assign importance weight
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Simplified scoring model
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Examples of other criteria that could be used
• Method:
• Structure the hierarchy of criteria
• Allocate weights to criteria
• Assign numerical values to evaluation
dimensions
• Evaluate project proposal
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Structure the hierarchy of criteria and assign weight
• Example:
Criteria Details Sub-criteria %
Finance Project will lead to - Long term
financial success - Short term 50
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Assign numerical value to evaluation criteria
• Example:
Criteria Sub criteria % Evaluation criteria Scoring
0 to 6 months 5
6 months to 1 year 3
Short term 30%
1 to 2 year 1
Finance More than 2 years 0
2 to 5 years 5
Long term 70% 5 to 7 years 3
More than 7 years 1
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Evaluate project proposal
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FINANCIAL SELECTION
MODELS
Different models
• Return on investment
• Payback period
• Discounted payback
• Net Present Value (NPV)
• Internal Rate of Return
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Return on Investment
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Return of investment
• Example:
• A hospital invest $500,000 to acquire a new
dialysis machine.
• Installing this machine will increase the
number of procedures by 25% thus increasing
overall revenue by $75,000 per year
• This new machine uses new supplies that
represents an economy of $100,000 per year
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Return on investment
• Example:
Revenue
Saving
Year Investment (no. of Balance
(Supplies)
procedure)
0 $500,000 ($500,000)
1 $75,000 $100,000 ($325,000)
2 $75,000 $100,000 ($150,000)
3 $75,000 $100,000 $25,000
4 $75,000 $100,000 $200,000
5 $75,000 $100,000 $375,000
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Project Portfolio Management
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Project Portfolio Management
Decision
Making
Re-prioritization Prioritization
Realignment Review
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