Introduction
Many companies globally find it necessary to engage in substantial financial ventures. The companies, however, have to make a choice between different competing projects that they wish to undertake. That is the reason why they have to employ the concept of project selection to evaluate the most profitable project in the long-run.
A company should calculate discounted-cash-flows that the company is expecting from the project in the long-run. These cash flows should be compared with the cost. A project’s lifetime has an end. Therefore, long-run may be long or short.
Project selection is a detailed process that tries to find and define the best project that a company should undertake. The characters that a project should have include a budget, timeline and objectives it sets out to achieve.
Many managers face challenges when defining projects and scholars have set out the three as the defining factors (Wiley Media, 2010).
How to Select a Project
Before selecting a project, the company should consider a number of factors. These factors may or may not apply to the company’s situation, but they are universally recommended for consideration.
These include: financial factors, personnel factors, production factors, marketing and administrative factors. These factors delve deep into the impact that the project in question will have to the company’s internal and external environment.
After looking into these factors, the company goes on to select the project. This is done by engaging models that are favorable to project selection. Models should however be realistic and people should be the ultimate decision makers, not models.
According to scholars, these models should portray some characteristics such as easy computerization, should be realistic, flexible, not too costly and easy to use and understand.
These will make it easy for the employees to have easy time when working on the project. It will also make it easy for the selectors to easily convey reports to management, who may not have the technical knowledge it entails.
Some of the most applicable models include: discounted cash flow method, net present value analysis and profitability indices. These, however, look at the financial bit of the projects, although the most important, the company employs other simulation models to ascertain other implication like environmental impact.
Other companies have developed steps through which they analyze and critically select projects based on all the above mentioned factors (Wiley Media, 2010).
Risk Analysis and Simulation
A project can not be entered into without looking into the amount of risk that a company is entering into. It should therefore, engage in risk assessment that is comprehensive. These include profits and costs, environmental implications and employee adaptation span.
If the project has too much risk associated with it is not adopted. A company, in case it has to choose between alternatives, goes for the less risky alternative.
Other factors that the company in question should consider include technological dimension of the project, the availability of necessary resources, if it is possible to partner with another company and the level of synergy that the project has in relation with other important projects.
Strategic Project Management
This is critically sensitive area of project appraisal. It looks at the viability of a project in the company’s competitive arena. A sound project should have competitive advantage both in the short and long run.
If a company’s business focus and project evaluation want to incorporate new products in the market in the market, it is incumbent upon the project that it wishes to undertake to enable it to do that before the rest. For example: laying internet cables in East Africa.
The company’s went to partner with companies that they thought should deliver the cable earlier than the rest so as to position themselves in the market and gain competitive advantage. It is also incumbent upon mangers of a project to know whether it is actually a project or not (Wiley Media, 2010).
Project management also looks at all the aspects of a project and is the central point from which many decisions are made. Initially, the company through its research and development department carries out an entailed study concerning the project.
This research is meant to give insight into many areas of the project. It also indentifies resources needed, the deadline of the project and value addition to the company.
Every project is broken down in stages such as initiation, execution monitoring and control and lastly closure. This is meant to make sure that there is little hustle when it comes to the execution by laying down the process (Wiley Media, 2010).
Project management also looks at the control systems that will govern the whole project. These define the parameters that the company will have to guard against in the whole process. It should set out the rules and regulations. This will entail the leadership of the whole project.
The leaders who are indentified will be answerable to the company management and will prepare reports for them. The members and the technical bench will be the ones involved with the ground work. However, their actions cannot exceed the mandate it sets out to achieve.
Conclusion
Any project that a company sets out to achieve, should be preceded by a detailed evaluation stage. Afterwards, the company looks at the viability of the project from the many parameters the company wants the project to be helpful. Close monitoring is not exceptional and finally review of the project after conclusion.
All these processes are under the management of a project that is set up after its commencement. Success of a project is important, hence the need for careful planning in its offset (Wiley Media, 2010).
Reference
Wiley Media. (2010). Strategic Management and Project Selection. Web.