CHE620

PROJECT MANAGEMENT
Faculty of Chemical Engineering
By: Cik Siti Khatijah Jamaludin

 Course Outcomes
1) Ability to apply the knowledge and function
effectively as a project manager and team
member.

2) Ability to demonstrate the communication

skills gained through oral and writing.

3) Ability to interpret the principles and practice of
project management in chemical engineering
application.

 Program Outcomes
1) Ability to communicate effectively not only
with engineers but also with the community
at large.
2) Ability to function effectively as an
individual and in a group with the capacity to
be a leader or manager as well as an
effective team member.
3) Ability to apply entrepreneurial business
acumen in engineering.

Some important details about CHE620

Credit hours : 3
Contact hours : 4 (3 hrs lectures & 1 hr tutorial)
Core subject
No pre-requisite required
Methods of instruction: Lecture, tutorial,
presentation, cooperative learning & mini-projects.

Chapters covered in CHE620..

Chapter 1 : Introduction/ Overview of Project Management

Chapter 2 : Project Manager, Organisation and Team
Chapter 3 : Planning the Project
Chapter 4 : Chemical Product Design
Chapter 5 : Feasibilities Studies of a Chemical
Manufacturing Process
Chapter 6 : Scheduling the Project
Chapter 7 : Allocating Resources to the Project
Chapter 8 : Budgeting the Project
Chapter 9 : Monitoring and Controlling the Project
Chapter 10: Evaluating and Terminating the Project
Chapter 11: Special Topics

Text books.
1) Project Management in Practice
(4th Ed., 2011)
Authors: Samuel J. Mantel Jr. , Jack R.
Meredith , Scott M. Shafer , Margaret M.
Sutton
Publisher: Wiley & Sons Inc.

2) Analysis, synthesis, and design of

chemical processes (3rd Ed., 2009)
Authors: Richard Turton, Richard C.
Bailie, Wallace B. Whiting
Publisher: Prentice Hall

3) Chemical Engineering Design Project: A Case

Study Approach (2nd Ed, 1989)
Authors: Martyn S. Ray & Martin G. Sneeby

Publisher: Gordon and Breach Science

Publisher

Assessment
Final Exam
: 60 %
Mini-project
: 20 %
Test
: 10 %
In-class assessment : 10 %
Total : 100 %

Instructors/ Lecturers
Week 1-7 : Cik Siti Khatijah Jamaludin
email :sitikhatijah@salam.uitm.edu.my
Contact : 03-5544 8209 / 017-4595937
room : Lecturers Room, Level 9, FKK
Week 8-14: Puan Siti Fatma Abd. Karim

Other important details

Attendance is compulsory. Students who fail
to comply 80% of the attendance will be
barred from taking the final examination.
Marks will be deducted for late submission of
assignment/report at a rate of 50% per week
after the due date.
This is an interactive class. Your participation
is class discussion will be assessed. So, please
be an active student!

Employers ranked Communication skills, Desire to learn,

Passion & Commitment, Team players and Flexible/
Adaptable as Top 5 Qualities in Fresh Graduates

Lecture 1 Week 1
Learning Objectives
1) To define the term project
2) To recognize the characteristics of a project
3) To provide examples of projects
4) To differentiate between a project and a nonproject
5)Define and provide the scope of project management
6)Explain the difference between project management
and general management

What Is a Project?
A project is a temporary endeavor undertaken to
accomplish a unique product or service-(PMBOK
Guide 2000, p. 4)
Stands for Project
Management Book of
Knowledge.
a book which presents a
set of standard
terminology and
guidelines for project
management
Published by: Project
Management Institute
(PMI) - http://www.pmi.org

Other definitions of a Project

Specific, timely, usually multidisciplinary, and
always conflict ridden (Mantel et al.)
Series of activities or tasks, specific objectives,
defined start and end dates, funding limits,
consumes resources, multifunctional (Kerzner)

What are the main characteristics of a

project???

Unique purpose/ specific/ one time and contains

well-defined objectives
Temporary (have a definite start date and an
expected completion date)

Other additional characteristics of a project:

Require resources, often from various areas
Should have a primary sponsor/customer/client
# The project sponsor usually provides the
direction and funding for the project

Involve uncertainty
Has unknown elements, which therefore create risk
Brings about change
Often multidisciplinary

Example of Projects

The newly launched Penang 2nd Bridge

(Sultan Abdul Halim Muadzam Shah Bridge)
Project started: August 2006
Project ended: February 2014
Purpose : A second bridge to link the (penang) island to the mainland. It is seen as a
key catalyst in the socio-economic development of the Northern Corridor
Economic Region (NCER) of Malaysia (source: Wikipedia)

Other example of projects..

Building a new chemical plant

Writing up a thesis
Planning a birthday party for your mother
Sending an astronaut to the space
??
??

What is NOT a project??

Something done as a routine (ongoing, repetitive
activities lacking the uniqueness.
Rarely implies the implementation of something
new.
Examples of non-project:
Attending classes every week
Renewing road tax every year
Companys annual grand meeting
Shut down/ Turn around of a chemical plant
??
??

Quiz- Are these projects?

Building a house

Yes

No

Lecturer giving lectures

Yes

No

Mowing the lawn

Yes

No

Planning a wedding

Yes

No

Setting up a business

Yes

No

Megaprojects

Megaprojects may be defined as:

Projects that cost more than US$1 billion (extremely large-scale investment) and
attract a lot of public attention because of substantial impacts on communities,
environment, and budgets
OR
Initiatives that are physical, very expensive, and public

Sometimes called major program

Require care in the project development process to reduce any possible optimism bias and
strategic misrepresentation
Examples of megaprojects include bridges, tunnels, highways, railways, airports, seaports,
power plants, dams, wastewater projects, Special Economic Zones (SEZ), oil and natural gas
extraction projects, public buildings, information technology systems, aerospace projects,
weapons systems, huge charity campaign.
"Mega" also implies the size of the task involved in developing, planning, and managing
projects of this magnitude.
Other projects that cost less than $1 billion are sometimes also called megaprojects, it
depends on the context. Example, projects less than 1 billion in a medium sized town may
be considered mega, this would not be necessarily be the case for a similar sized project in
a major world city.
Source: Wikipedia

Examples of megaprojects

Program
Program: A group of related projects managed in
a coordinated way to obtain benefits and
control not available from managing them
individually.

*PMI, A Guide to the Project Management Body of Knowledge

23
(PMBOK Guide) (2004), p. 16.

Project Management
Management : is the process of Planning, Organizing,
Controlling and Measuring
Planning: The most critical and gets the least amount of
our time
**Beginning with the End in mind-Stephen Covey**
Organizing: Orderly fashion
(Contingent/Prerequisites)
Controlling: Critical if we are to use our limited resources
wisely
Measuring: To determine if we accomplished the goal or
met the target.

Project management :The application of

knowledge, skills, tools, and techniques to
project activities in order to meet project
requirements (PMI*, Project Management Body of
Knowledge (PMBOK Guide), 2004)

Project Management Framework

Project Stakeholders
Stakeholders are the people involved in or affected
by project activities
Stakeholders include
the projects sponsor/client and its project team
he projects contractor and its project team
support staff
users
suppliers
opponents to the project

Project Management Tools and

Techniques
Project management tools and techniques assist
project managers and their teams in various
aspects of project management
Some specific ones include
Project Charter, scope statement, and WBS (scope)
Gantt charts, network diagrams, critical path analysis,
critical chain scheduling (time)
Cost estimates and earned value management (cost)

Project Management.

Work Smart Not Hard !!!

Project Management vs. General Management

Basically, the two disciplines overlap with each other.
General management also encompasses planning,
organizing, staffing, executing and controlling but it is
more applicable to operations of the ongoing
enterprise.
Project management principles are more specific to
implementation of a change, a project, which is a
unique and temporary with a finite start and finish time
and has all the attendant problems and risks associated
with it.

Some notable differences

Project
Management

General
Management

Higher
level of
conflict

Conflict

Unique

Uniqueness

Requires much more

carefully detailed
plan. Project success
is absolutely
dependent on such
plan
Budgets are newly
created for each
project & often
cover several
budget periods in
the future

Planning

Budget

Lower level
of conflict

Routine

Requires
good
planning

Primarily
modifications of
budgets for the
same activities of
previous periods

Some notable differences (cont)

Project
Management

General
Management

Each project
has own
schedule

Schedule/
sequence
Conflict
of activities

Not altered

Yes (crosses
disciplines
freely)

Multidisciplinary

No (rarely
crosses the
boundary)

Difficult to define.
Responsibility
without the
authority of rank or
position is common
in PM

Managerial
Hierarchy

Structured
and
reasonably
well defined

Source: Mantel et. al (2011)

Ref: BENATECH INC. (2009)

Where is a project manager/ project management team in an

organization??

Learning Objectives
By the end of this lecture, students should be able to:

Describe 3 goals of a project

Relate the importance of negotiation skill in
Project Management
Identify different types of project life cycle
Understand various evaluation models for
selecting projects

3 Goals of a Project
All projects have 3 interrelated objectives:
Scope : Generate deliverables that satisfy the client
Time : Finish on schedule
Cost : Meet the budget limit

But.

Uncertainties are bound to happen in any project,

which will threaten the pre-determined scope, time
and budget.
It is the project managers duty to balance these three
often competing goals.

A must-have skill in PM: Negotiation skill..

Negotiation
Mutual discussions for the purpose of arriving at the
terms of a transaction or agreement

 The nature of the role of a project manager makes it

essential for him/her to have good negotiation skills.
There are usually many stakeholders involved in a project
and most projects have team members from different
departments. This usually results in several different points
of view which can sometimes make it difficult to keep the
project on track and within the original scope.
Negotiation skills help a project manager by reaching an
agreement or a compromise of some kind on the issue that
may be causing a problem or delay.
Skilled negotiators have the ability to manage the situation
so that all parties involved feel as though they had a say
that was taken into consideration.

Types of negotiation in
PM

Win-win
negotiation

Within an organization, a win-win

negotiation is mandotory

Win-lose
negotiation

A win-lose negotiation is not

suitable for PM. Never
appropriate when dealing with
other members of organization

 Successful win-win negotiation often involves taking

a synergistic approach by searching for the third
alternative
Example win-win negotiation:
Consider a product development project focusing on the development of a new inkjet
printer. A design engineer working on the project suggests adding more memory to
the printer. The PM initially opposes this suggestion, feeling that the added memory
will make the printer too costly. Rather than rejecting the suggestion, however, the PM
tries to gain a better understanding of the design engineers concern.
Based on their discussion, the PM learns that the engineers purpose in requesting
additional memory is to increase the printers speed. After benchmarking the competition,
the design engineer feels the printer will not be competitive as it is currently configured.
The PM explains his fear that adding the extra memory will increase the cost of the
printer to the point that it also will no longer be cost competitive. Based on this discussion
the design engineer and PM agreed that they need to search for another (third)
alternative that will increase the printer s speed without increasing its costs. A couple of
days later, the design engineer identifies a new ink that can simultaneously increase the
printers speed and actually lower its total and operating costs.
Source: Mantel et al. (2011, pg. 6)

Class Activity: Negotiation Skill

Form into teams of 3

Activity: Create a win-win negotiation for the scenario

below:
Negotiations for a scarce resource
The person whos birthday occurs earliest in the year plays the role of the
Negotiating PM. Next birthday is Alis Manager. The third (and fourth?)
persons are Observers who note use/abuse of win-win techniques.
Background:
The Negotiating PM has a Programmer off sick, and wants to negotiate
two weeks of Alis time to work on the Companys most important project
immediately, because Ali is the best programmer, and knows the tasks.
Delays may affect everyones bonus.
Alis Manager is concerned the loss of Ali will mean she will not be able
to complete tasks on another project their department is committed to
deliver, because the Negotiating PM has a reputation of over-utilizing
resources
Time: 5 minutes negotiation + 2 minutes presentation

The Life Cycles of Projects

Life cycle

Project Life Cycle

A collection of generally sequential project phases whose
name and number are determined by the control needs of
the organization or organizations involved in the project.

-(PMBOK, PMI (2000))

Projects life cycle measures project completion as a function of:

1. Time (schedule), or
2. Resources (budget)
Typical Project Life Cycle

Time
Beginning/Early Stage
Idea/ concept developed
Project authorized
PM must ensure project plan reflects the
wishes of client/sponsor.
PM must gauge the abilities of the project
team.
PM must ensure the project plan is
consistent with the goals of his/her firm.

Middle Stage/
Implementation Stage
PM must keep the project on budget
and schedule
PM must anticipate uncertainties and
interruptions in progress, and negotiate
appropriate trade-offs to minimize
damages.

Final Stage/End
Stage
Results delivered, final
report issued
PM to ensure the
specifications of the project
are truly met.
PM must must handle all the
closing out details, making
sure there are no loose ends.

2 different types of Project Life Cycle

The

S shape

The

J shape

Identifying the different life cycles helps the PM to focus

attention on appropriate matters to ensure successful
project completion
Mantel et al. (2011)

Project Selection
The process of evaluating individual projects or
groups of projects, and then choosing to
implement some set of them so that the
objectives of the parent organization will be
achieved.

 Since projects in general require a substantial investment in

terms of money and resources, both of which are limited, it
is of vital importance that the projects that an organization
selects provide good returns on the resources and capital
invested.
The proper selection of investment projects is crucial to the
long-run survival of every organization.
The major function of the selection process is to ensure that
several conditions are considered before a commitment is
made to undertake any project.
The selection process is often complete before a Project
Manager is appointed to the project.

Is the project
required by law or
the rules of an
industrial
association?
Is the project
potentially
profitable?

Does the
organization
currently have the
capacity to carry out
the project on its
proposed schedule?

Conditions to
Consider in a
Project
Selection
Process

Does the
organization/firm
have the knowledge
and skills to carry out
the project
successfully?

In the case of R&D

projects, if the project is
technically successful,
does it meets all
requirements to make it
economically
successful?

Project Selection
Models

Numeric
Models that use numbers for
evaluation.
Examples: Payback Period,
Return on Investment (ROI),
Discounted Cash Flow, Internal
Rate of Return, Profitability
Index, Scoring Methods.

a.k.a. project
selection
methods

Nonnumeric
Models that do not use
numbers for evaluation.
Examples: Sacred Cow,
Operating/ Competitive Necessity,
Product Line Extention,
Comparative Benefit Model.

Both widely used. Many organizations use both at the same

time, or they use models that are combinations of the two.

Two Critical Facts about Models!

Models do not make decisions - People do!
Models only aid decision making.
All models, however sophisticated, are only
partial representations of the reality the
are meant to reflect. Their limitations
should be appreciated as they are only
prediction of what could happen and as
accurate as data they are based on.
MODELS ARE TOOLS, MANAGERS ARE THE DECISION MAKERS!!!

Important Criteria in Selecting a Model

Ease of
Use

Realism

Capability

Flexibility

Cost
Easy
Computisation

Important Criteria in Selecting a Model (cont.)

Realism - reality of managers decision
Capability- able to simulate different scenarios and optimize
the decision
Flexibility - provide valid results within the range of
conditions

Ease of Use - reasonably convenient, easy execution, and

easily understood
Cost - Data gathering and modeling costs should be low
relative to the cost of the project
Easy Computerization - must be easy and convenient to
gather, store and manipulate data in the model

Nonnumeric Models
Sacred Cow
Operating Necessity
Competitive Necessity

Product Line Extension

Comparative Benefit

The Sacred Cow

Suggested by a senior and powerful official in the
organization.

Often initiated with a simple comment such as, If you

have a chance, why dont you look into . . ., and there
follows an undeveloped idea for a new product, for the
development of a new market, for the design and
adoption of a global data base and information system,
or for some other project requiring an investment of the
firms resources.
Sacred in the sense that it will be maintained until
successfully concluded, or until the boss, personally,
recognizes the idea as a failure and terminates it.

The Operating Necessity

A project that is required in order to protect lives
or property or to keep the company in operation.
I.e. : If a flood is threatening a process plant, a
project to build a protective drain does not
require much formal evaluation, which is an
example of this scenario.

The Competitive Necessity

A project that is required in order to maintain the
companys position in the marketplace.

The decision to undertake the project based on a

desire to maintain the companys competitive position
in that market.
Investment in an operating necessity project takes
precedence over a competitive necessity project
Both types of projects may bypass the more careful
numeric analysis used for projects deemed to be less
urgent or less important to the survival of the firm.

The Product Line Extension

A project to develop and distribute new products
judged on the degree to which it fits the firms
existing product line, fills a gap, strengthens a weak
link, or extends the line in a new, desirable direction.
Sometimes careful calculations of profitability are
not required. Decision makers can act on their beliefs
about what will be the likely impact on the total
system performance if the new product is added to
the line.

Comparative Benefit Model

When there are many projects to consider. A selection
committee is appointed with the task to arrange projects into
a rank ordered set based on their perceived benefit to the
company (e.g. the peer review used by research funding
organizations).
Organization has many projects to consider but the projects
do not seem to be easily comparable. For example, some
projects concern potential new products, some concern
changes in production methods, others concern
computerization of certain records, and still others cover a
variety of subjects not easily categorized (e.g., a proposal to
create a daycare center for employees with small children).
No precise way to define or measure benefit.

Q-Sort Method
Q-Sort method is a type of Comparative Benefit Model.
It is normally used as a rank-ordering method when
there is a large number of projects (>15 or 20 projects)
need to be rank-ordered simultaneously in an
organization.
Of the several techniques for ordering projects, the QSort is one of the most straightforward.

Class Activity
You are given a handout on Q-Sort method by
your instructor. In a group of 3, discuss the Q-Sort
method. Thereafter, you are required to present
your understanding on Q-Sort method in the
class.

The Q-Sort Method

Source: Mantel et al. (2011,)

Numeric Models
Financial Assessment
Methods/ Profitability
Methods
Select projects on the
basis of their expected
economic value to the firm
Concerns with cost and
revenues of the projects
Non-discounted
Cash Flow
Payback Period

Discounted Cash
Flow

Net Present Value (NPV)

Average Rate of Return Internal Rate of Return
Profitability Index

Scoring Methods

Use multiple criteria to

evaluate a project
Unweighted Factor Model
Weighted Factor Scoring Model

Non-discounted Cash Flow: Payback Period

Payback period is the length of time (number
of years) required for a project to repay its
initial fixed investment.
Initial Investment
Pay backPeriod =
Annual Cash Inflow

Uniform Annual Cash Inflow

Non-uniform Annual Cash Inflow

The lower the payback period the better (exposure / risk

to the firm is minimized)

 Example 1 (Uniform annual cash inflow)

Assume a project costs RM200 000 to implement
and has annual cash inflow of RM25 000.
Calculate the payback period.
Solution:
ProjectCost
Pay backPeriod =
Annual Cash Inflow
RM 200,000
Pay backPeriod =
= 8y ears
RM 25,000

 Example 2: Non uniform annual cash flow

A company wishes to buy a new machine for a four year project.
The manager has to choose between machine A and B. Both
machines have the same initial cost (RM35,000) but their cash
flows behave differently over the 4-year period. Determine the
payback period for each machine.

Initial Cost

Year
0
1
2
3
4
Payback Period

Cash Flows (RM)

Machine A Machine B
35000
35000
20000
10000
15000
10000
10000
15000
10000
20000
2 years

3 years

Example 3
Cash Flows (RM)
Year

Project A

Project B

Project C

(120000)

(120000)

(120000)

60000

45000

40000

60000

45000

70000

3
Payback
Period

60000

45000

80000

2.67 years

2.125 years

2 years

 Advantages of Payback Period:

Simple and easy to use
Reduces the projects exposure to risk and
uncertainties by selecting the project that has the
shortest payback period.
It may be important to organizations which face cash
flow constraints or need speedy cash recovery.

 Disadvantages of Payback Period:

It does not consider time value for money, where
the effects of differential inflation and interest rates
could significantly change the results.
It ignores the importance of cash inflows beyond the
payback period. A project that build up slowly to give
excellent returns would be rejected in favour of a
project with lower early returns if the payback period
was shorter.
Less meaningful over longer periods of time (due to
time value of money).

Discounted Cash Flow

DCF techniques seek to remedy some of the defects of the payback period
and accounting rate of return by taking into consideration the time value of
money

Time Value of Money

Before we proceed, there are some
accounting concepts you must understand!!

Future Value
Present Value

Time Value of Money Concept:

A Ringgit today cannot be compared to a Ringgit in the future. Given a choice of

receiving a Ringgit today or a Ringgit at some point in the future, a rational person
will always choose to receive the Ringgit today.

In order to compare Ringgit today to Ringgit in the future, we must convert one
into an equivalent amount of money in the other's time period. For example,
assume you are asked, "Which do you prefer to receive - RM4,000 today or
RM5,000 in four years?" To compare the two numbers, we might convert the
RM5,000 to be received in five years into an equivalent amount of money in
"today's Ringgits.

The time value of money concept is concerned with two topics: (1) future
value, and (2) present value.
As shown in the illustration below, the two are mirror images of one
another. (Year 0 stands for "at the present time" or "right now" since year 1
would be 1 year from now, etc.) :

In a future value problem, we know the amount of money that we have to

invest today (i.e., the present value). What we don't know is how much
money we will have in the future (i.e., the future value).
In a present value problem, we know the amount of money that we want to
have (or expect to have) in the future. What we don't know is how much
money we need to invest today in order to attain that money in the future.

 Future value (FV) and Present value (PV) are

interrelated by using this equation:
Time period of
cashflow
Compounding
Process
Interest rate
Present Value???
Discounting
Process

Discount
rate
or
minimum required rate
of return or cost of
capital or cut-off rate
or hurdle rate

The discount rate

This is the rate at which you discount future cash flows.
The discount rate is by how much you discount a cash flow in
the future.
For example, the value of RM1000 one year from now
discounted at 10% is RM909.09. Discounted at 15% the value
is RM869.57. Paying RM869.57 today for RM1000 one year
from now gives you a 15% return on your investment. The
discount rate is essentially your required annual return on
investment.
The most difficult aspect related to the proper use of
discounted cash flow is determining the appropriate discount
rate to use. While this determination is made by senior
management, it has a major impact on project selection, and
therefore, on the life of the project.

Discounted Cash Flow: Net Present Value (NPV)

The net present value (NPV) of a project is equal to the present
value of the cash inflows minus the present value of the cash
outflows all discounted at the discount rate
n
FVt
FV1
FV2
FVn
NPV (project) = - I0 +
+
+ .. +
= - I0 +
1
2
n
(1 + k ) (1 + k )
(1 + k )
(1 + k ) t
t =1

Where,

FVt = net cash flow from the project in period t

k = the discount rate
n = economic life of the project

I0 = initial investment of project

IF NPV > zero, accept the project

IF NPV = zero, be indifferent to the project
IF NPV < zero, reject the project

NPV Example
Initial investment of RM100,000 with a net
cash inflow of RM25,000 per year for 8 years,
a required rate of return of 15%, and an
inflation rate of 3% per year, we have:
8

NPV (project)= - RM100,000 +

(1 + 0.15 + 0.03)t
RM 25,000

t =1

= RM1,939
The present value of the inflows is greater than the present value of the outflow the
NPV is positive. Therefore the project is acceptable.

NPV Example 2
The management of Fine Electronics Company is
considering to purchase an equipment to be attached with
the main manufacturing machine. The equipment will cost
RM6,000 and will increase annual cash inflow by RM2,200.
The useful life of the equipment is 6 years. After 6 years it
will have no salvage value. The management wants a 20%
return on all investments.
a) Compute net present value (NPV) of this investment
project.
b) Should the equipment be purchased according to NPV
analysis?

Numerical models: Scoring Models

Scoring models attempt to overcome some of the
disadvantages of financial profitability methods
by incorporating additional decision criteria
Two broad categories of scoring models
1. Unweighted factor model
a) Unweighted (0-1) Factor Scoring Model
b) Unweighted Factor Scoring Model

2. Weighted factor model

Meredith & Mantel (2009) Project

management: a managerial approach. 7th
ed. Wiley.

Scoring Method 1- Unweighted (0-1) Factor Model

Uses a set of relevant factors as determined

by management
Each factor is weighted the same
Less important factors are weighted the same
as important ones
Easy to compute - just total or average the
scores
The major disadvantage is that the model
assumes that all factors are equally important

Unweighted (0-1) Factor Model: Example 1

Meredith & Mantel (2009) Project management: a managerial approach. 7th ed. Wiley.

Unweighted (0-1) Factor Model: Example 2

Selection Criteria
Alignment with core business
Top-management support
Positive impact on stakeholders
Stage of technology development
Adequate knowledge of technology
Existing facility and equipment
Availability of raw materials
Potential market for output
Probability of share of potential market
Ability to reach market timely
Adequate return on investment
Adequate payback period
TOTALS

Project A
1
1
1
0
0
0
1
1
1
1
0
0
7

Project B
0
1
0
1
0
1
1
1
0
1
1
1
8

Scoring Method 2 Unweighted Factor Scoring Model

Selection Criteria
Alignment with core business
Top-management support
Positive impact on stakeholders
Stage of technology development
Adequate knowledge of technology
Existing facility and equipment
Availability of raw materials
Potential market for output
Probability of share of market
Ability to reach market timely
Adequate return on investment
Adequate payback period
TOTAL

Project A
4
4
5
1
2
1
5
5
5
5
2
2
41

Project B
4
4
2
4
2
3
5
5
1
3
3
5
41

Scoring Method 3-Weighted Factor Scoring Model

Each criterion weighted according
importance relative to the other criteria.

to

its

perceived

Against each criterion project is given a score within a range

(5 (or 10) = very good, down to 1 = very poor) to reflect how
it meets the criterion.
Weighted score for each criterion = Weighting x Score.

Weighted Factor Scoring Model Example

Project A
Selection Criteria

Weighting

Alignment with core business

13
Top-management support
10
Positive impact on stakeholders 10
Stage of technology development 6
Adequate knowledge of technology 7
Existing facility/equipment
4
Availability of raw materials
9
Potential market for output
10
Probability of share of market
10
Ability to reach market timely
8
Adequate return on investment
8
Adequate payback period
5
TOTAL
100

Score
4
4
5
1
2
1
5
5
5
5
2
2

Project B
Weighted
Score
52
40
50
7
14
4
45
50
50
40
16
10
378

Score
4
4
2
4
2
3
5
5
1
3
3
5

Weigh
Score
52
40
20
24
14
12
45
50
10
24
24
25
340

Advantages of the scoring model

They allow multiple criteria to be used for evaluation
Weighted models recognize that some criteria are
more important than others
Structurally simple and relatively easy to understand
They are a direct reflection of management policy
Easily altered to accommodate change in
management policy or priorities
They allow for sensitivity analysis, because trade-off
between factors is easily observable
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.

Disadvantages of the scoring model

Ease of use can lead to the inclusion of too
many criteria
The output of a scoring model is strictly a
relative measure rather than an absolute
go/no go indication
Unweighted scoring models assume all criteria
are of equal importance this is seldom the
case
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.

Analysis Under UncertaintyThe Management

of Risk
Everything to do with projects is risky
Some projects, like R&D, are more risky than others,
like construction
Risks include
The timing of the project and its associated cash flow
Risk regarding the outcome of the project
Risk about the side effects

Risk can be assessed by a number of methods,

including simulation
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.

Distinguishing between risk and

uncertainty
Risk applies to events that have a known (or
estimated) probability of occurrence.
Uncertainty applies to events where there is
insufficient data to estimate the probability of
occurrence.
For effective project management, decisions
should be treated as risks rather than
uncertainties.
Meredith & Mantel (2009) Project
management: a managerial approach. 7th
ed. Wiley.