Cost management 642 paper 6
Download
1 / 17

COST MANAGEMENT 642 - Paper 6 - PowerPoint PPT Presentation


  • 111 Views
  • Uploaded on

COST MANAGEMENT 642 - Paper 6. PROJECT SELECTION NUMERICAL METHODOLOGIES SCORING 1.0. INTRODUCTION 2.0. SCORING METHODOLOGIES 2.1. Scoring Methodologies: Introduction 2.2. Scoring Methodologies: Unweighted Scoring 2.3. Scoring Methodologies: Weighted Scoring

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'COST MANAGEMENT 642 - Paper 6' - robyn


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Cost management 642 paper 6 l.jpg
COST MANAGEMENT 642 - Paper 6

PROJECT SELECTION

NUMERICAL METHODOLOGIES

SCORING

  • 1.0. INTRODUCTION

  • 2.0. SCORING METHODOLOGIES

    • 2.1. Scoring Methodologies: Introduction

    • 2.2. Scoring Methodologies: Unweighted Scoring

    • 2.3. Scoring Methodologies: Weighted Scoring

    • 2.4. Scoring Methodologies: Advantages and Disadvantages

    • 2.5. Scoring Methodologies: Example (Angling, 1985)


Scoring methodologies introduction l.jpg
Scoring Methodologies - Introduction

  • ”Use of formal, numeric procedures for evaluation & selection of projects is a recent phenomenon, largely post-WW2"

  • 2 types of numeric methods - SCORING & FINANCIAL.

  • Financial PS uses cashflows as a means for selection.

  • If all projects expressable in cashflows then selection is simple: alternative with largest profit or lowest cost

  • But often PS criteria cannot be measured in $$. Scoring used to evaluate projects against a set of diverse criteria.

  • Criteria usually set by upper management & derived from organisation's goals.

  • Proposed projects allocated scores based on how they meet the selection criteria. The scores are totalled and projects ranked.


Scoring methodologies introduction3 l.jpg
Scoring Methodologies - Introduction

  • Either all projects meeting a certain score chosen; or highest scoring projects selected until a total budget is reached.

  • “Take care. Scores are just relative indications of best projects. Small differences are probably not significant. But, large differences indicate that 1 project is clearly better than another. Team needs to examine results to determine that they really do make sense”

  • Selection by scoring typically by group process

  • Scoring methodologies useful as initial screening process for project proposals


Scoring methodologies l.jpg
Scoring Methodologies

QUESTION

  • PROJECT - best way to travel 3km to work - walk, bicycle, car, bus

  • Select the project selection criteria - Do & Discuss

  • Method 1 - - Do & Discuss


Scoring method 1 no range unweighted l.jpg
Scoring Method 1 - No-Range & Unweighted

Selection CriteriaProject AProject B

Alignment with core business 1 0

Top-management support 1 1

Positive impact on stakeholders 1 0

Stage of technology development 0 1

Adequate knowledge of technology 0 0

Existing facility and equipment 0 1

Availability of raw materials 1 1

Potential market for output 1 1

Probability of share of potential market 1 0

Ability to reach market timely 1 1

Adequate return on investment 0 1

Adequate payback period 0 1

  • TOTALS 78


Scoring method 1 no range unweighted6 l.jpg
Scoring method 1 - No-Range & Unweighted

  • Project receives a point for each criteria met.

  • Project meeting minimum number of criteria may be chosen.

  • Major disadvantages:

    • assumes all criteria are of equal importance

    • no graduation of degree to which a project meets criteria


Scoring methodologies7 l.jpg
Scoring Methodologies

QUESTION

  • PROJECT - best way to travel 3km to work - walk, bicycle, car, bus

  • Method 2 - - Do & Discuss

  • Method 3 - - Do & Discuss


Scoring method 2 range unweighted l.jpg
Scoring Method 2 - Range & Unweighted

Selection Criteria Project A Project B

Alignment with core business 4 4

Top-management support 4 4

Positive impact on stakeholders 5 2

Stage of technology development 1 4

Adequate knowledge of technology 2 2

Existing facility and equipment 1 3

Availability of raw materials 5 5

Potential market for output 5 5

Probability of share of market 5 1

Ability to reach market timely 5 3

Adequate return on investment 2 3

Adequate payback period 2 5

TOTAL 4141


Scoring method 2 range unweighted9 l.jpg
Scoring Method 2 - Range & Unweighted

  • each criterion - each project is allocated a subjectively evaluated score within a range (e.g., 5 = very good, down to 1 = very poor).

  • permits allocation of degree to which project meets each criterion

  • Disadvantage - No rating of importance of criteria.


Scoring method 3 weighted scoring l.jpg
Scoring Method 3: Weighted Scoring

  • Each criterion weighted according to its perceived importance relative to the other criteria.

  • Against each criterion project is given a score within a range (5 = very good, down to 1 = very poor) to reflect how it meets the criterion.

  • Weighted score for each criterion = Weighting x Score.


Scoring methodologies weighted scoring l.jpg
Scoring Methodologies: Weighted Scoring

Project A Project B

Selection Criteria Weighting Score Weighted Score Weigh

ScoreScore

Alignment with core business 13 4 52 4 52

Top-management support 10 4 40 4 40

Positive impact on stakeholders 10 5 50 2 20

Stage of technology development 6 1 7 4 24

Adequate knowledge of technology 7 2 14 2 14

Existing facility/equipment 4 1 4 3 12

Availability of raw materials 9 5 45 5 45

Potential market for output 10 5 50 5 50

Probability of share of market 10 5 50 1 10

Ability to reach market timely 8 5 40 3 24

Adequate return on investment 8 2 16 3 24

Adequate payback period 5 2 10 5 25

TOTAL 100 378340


Selecting weighted values for criteria l.jpg
Selecting Weighted Values for Criteria

Anchoring – Uses 9-point scale:

  • 9= most important criterion

  • 1= least important criterion.

  • All other criteria are then rated to these anchoring limits.

    Pairwise Comparison

  • Criteria compared with each other in pairs

  • For each pairwise comparison, judgement & score made of relative importance between the two.

  • Allows focus on 2 selection criteria in isolation, without the distraction of considering all other criteria.


Pairwise comparision l.jpg
PAIRWISE COMPARISION

B C D

A. A8 A2 A6

B. B1 B3

C. D2

CRITERIA RAW SCORE % / WEIGHTING

Criterion A 16 73

Criterion B. 4 18

Criterion C. 0 0

Criterion D. 29

22100%


Scoring methodologies14 l.jpg
Scoring Methodologies

QUESTION

What are the

  • benefits

  • problems

    with scoring methods for project selection ?


Scoring methodologies advantages l.jpg
Scoring Methodologies - Advantages

  • Considers multiple criteria - can evaluate complex projects

  • Beyond narrow focus of $ - “growing realisation that profitability alone is not a sufficient test for the quality of an investment”

  • convenient numerical means to summarise project’s effectiveness

  • Makes management focus on what it wants from a project.

  • easy to use and understand

  • Reflects management policy - what is and is not important

  • Easily altered to suit changes in managerial philosophy or environment

  • Weighted scoring acknowledges some criteria are more important than others


Scoring methodologies disadvantages l.jpg
Scoring Methodologies - Disadvantages

  • Give relative measurement. Final score does not represent absolute value - so does not directly indicate if project should proceed

  • Criteria are assumed to be independent

  • Unweighted scoring assumes all criteria are equally important

  • Ease of use leads to the inclusion of numerous criteria which have small and insignificant weightings

  • Numerical nature may delude that process is objective, whereas scores invariably reflect subjective opinions

  • May requirea significant effort to achieve consensus among the stakeholders who are involved in the decision process


Paper 6 scoring methodologies l.jpg
Paper 6 - SCORING METHODOLOGIES

  • Scoring Methodologies: Introduction

  • Scoring Methodologies: Unweighted Scoring

  • Scoring Methodologies: Weighted Scoring

  • Scoring Methodologies: Advantages and Disadvantages

  • Scoring Methodologies: Example (Angling, 1985)


ad