COST MANAGEMENT 642 Paper 5

1. COST MANAGEMENT 642 Paper 5 PROJECT SELECTION NON-NUMERIC METHODOLOGIES

2. PROJECT SELECTION NON-NUMERIC METHODOLOGIES 1.1. Introduction 1.2. The Sacred Cow 1.3. The Operating Necessity 1.4. The Competitive Necessity 1.5. The Product Line Extension 1.6. Comparative Benefit Model

3. NON-NUMERIC METHODOLOGIES • Non-numeric Project Selection does not use numbers • “Easy to dismiss such models as unscientific (but) they should not be discounted casually. These models are clearly goal-orientated and directly reflect the primary concerns of the organisation" • Generally used when limited information available or selection process must be completed quickly • Examples • sacred cow, • operating necessity, • competitive necessity, • product line extension, • comparative benefit.

4. NON-NUMERIC METHODOLOGIES Questions 1 to 4 Do now !

5. NON-NUMERIC METHODOLOGIES • Sacred Cow • projects - idea from top & influential management • maintained until successfully concluded, or until the boss, personally, recognises the idea as a failure and terminates it." • Maybe inappropriate, but supported by top management and this is “an important contributor to project success • Operating Necessity • projects embarked upon with little management discretion • eg collapsing wall, Y2K • Major consideration- is cost justified.? "If yes, costs kept as low as is consistent with project success, but project will be funded"

6. NON-NUMERIC METHODOLOGIES • Competitive Necessity • project selected to maintain organisation's position &/or survival eg: upgrade ageing production equipment to counter developments from its competitors. • Product Line Extension • project to develop new product - not be selected based on profitability but "would be judged on the degree in which it fits the firm's existing product line, fills a gap, strengthens a weak link, or extends the line in a new, desirable direction”

7. NON-NUMERIC METHODOLOGIES • PEER REVIEW • Management want unbiased external assessment of proposed project. • Peer review = send proposal to experts to assess technical merits • Experts submit independent recommendations, or panel • Common in scientific areas particularly government funded R&D project proposals. • Advantages - assessment is expert and objective • However “peer review has long been criticised as a highly subjective approach that is susceptible to distortions, such as bias in favour of an old boy network”

8. Comparative Benefit Model • used to select between diverse projects not easily comparable. • Allows a ranking to be obtained, even though it may not be possible to evaluate the projects against every project-selection factor • Examples: • Q-sorting. • forced comparison, • peer review • murder board • grid profiling, • profile modelling

9. Original Deck High level low level High level Medium level low level V. High level High level Medium level low level V. Low level Q-SORTING

11. Q-SORTING • Structured group process. Each person given set of project cards. • Steps: • Each person sorts cards into HIGH or LOW priority– based on criteria • Cards reviewed & MEDIUM-priority projects extracted • HIGHs = HIGH or VERY HIGH. LOWs = LOW or VERY LOW. Now 5 piles • Results from all group members grouped & displayed. • Results surveyed by each person who can shift any card • Results displayed. Opportunity for members to reach consensus. • VERY HIGH first considered for funding • Group processes often deeply influenced by behavioural factors. Q-sorting tries to overcome these factors

13. FORCED COMPARISON • Each department ranks projects they wish to take to selection board, • Each department’s top-ranked project is compared to every other department’s top-ranked project. • Board “selects one project based on their collective opinion as to the overall value of the project obtaining the organisation’s objectives” • As 1 project selected, that department introduces next project which is then compared to top-listed projects of other departments. • Process continues until all projects have been ranked. • Number of projects selected for approval will be based upon the availability of organisational resources

14. PROFILE MODEL Project X has better profile and is preferred to Project Y

15. PROFILE MODEL • Rates projects qualitatively. No numerical assessments are made • Easy to read and quickly understood presentation. • Disadvantage - fails to inform whether a project scoring HIGH in certain criteria outweighs its MEDIUM & LOW scores in other criteria. • "Thus, there is no way to get a single overall score or rating for each project"

16. GRID PROFILING low costs med. high • technical benefits • enhancement of core competencies • harmony with corporate culture high med. low Financial benefits

17. GRID PROFILING Based on 4 PS criteria most effective for selection purposes: A.financial benefits, B. technical benefits C. enhancement of core competencies D. harmony with corporate culture • Grid A - financial benefits - each project placed in cell to reflect its expected level of costs and financial benefits. • Process is followed for Grids B, C, D. • Then overall assessment made by selection team . • Not too analytical - trust collective insights. “Spent substantial time reviewing proposals and now know each project intimately” • Final step - allocate each proposal in a generic ‘super’ benefit-coat grid. - “when all is said and done, which cell does each belong in?

18. low costs med. high high med. low Technical benefits low low costs low med. costs med. costs med. high high high high med. low Financial benefits high med. low high med. low Enhancement of Core Competencies Harmony with Corporate Culture

19. MURDER BOARD • = panel of people from different parts of organisation whose strongly scrutinise project proposals. • “they should tear it apart and try to show how it is not workable” • Proposer must present & defend project before the panel. • Purpose - “not to punish & humiliate project champion but rather to distinguish between solid and shaky propositions ... the murder board serves the function of ‘reality check’ ” • Usually used in conjunction with other selection methodologies, such as a profile model, grid

20. Paper 5: PROJECT SELECTION NON-NUMERIC METHODOLOGIES • The Sacred Cow • The Operating Necessity • The Competitive Necessity • The Product Line Extension • Comparative Benefit Model: • Q-Sorting • Forced Comparision • Profiling • Grid profiling • Murder board