03a ppc online module3

2013-01-16

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Module 3 - Project SelectionPart A

Dr. Sang-Heon LEE

School of Advanced Manufacturing and Mechanical Engineering

University of South Australia

MFET 5040

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Steps so far/what we are going to do

Identification of a real need: problems, services, products

Clear & exact understanding of objectives, scope & outcome

Identify all reasonable alternatives: Brain storming

Select the best option: selection criteria, selection method

Project Charter3/38

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1. Understand the need of selection process

2. Explain the following selection models and how to use them

• Check list

• Scoring model

• Cost effectiveness analysis

• Analytic hierarchical process

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Introduction/selection process

Check List

Scoring Model

Cost Effectiveness Analysis

Analytic Hierarchy Process

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Introduction

Any project can be completed using different methods or options.

Due to some financial, technical or other reasons (called selection criteria), the only “BEST” option(called selection criteria), the only BEST option should be selected to complete the project.

Images from http://office.microsoft.com/en-au/images/ 6/38

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A selection process is designed to “select” the best way to achieve the project objectives.

An initial screening will allow to short-list most potential alternatives by eliminating most unfeasible

Introduction

ones: 2 to 5 options remaining. Then we need to choose the best option based on

selection criteria/formal selection method chosen.


Introduction

Throughout the whole project, the selection process should be repeated several times in response to new technologies

developed, changing environmental

& financial circumstances,

Modified project goal

Images from http://www.unisa.edu.au 8/38

Every project should contribute values to the organisation’s strategic vision to meet the future needs of its customers.

Hence, the project selection process should

Project and strategic plan of the company

Hence, the project selection process should consider the company’s strategic goals.

Images from http://daum.net 9/38

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Lecture outline

Introduction/selection process: ContinuedCheck List

Scoring Model


Analytic Hierarchy Process

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1. Understand the “CLEAR” definition and the scope of the project: Collect more data if required

Procedure of selection processes

2. Find different alternatives3. Determine “selection criteria”

to be used in the selection process

4. Use a selection method to select the best option.

Images from http://office.microsoft.com/en-au/images/ and http://daum.net 11/38

Selection process Selection

process always involves a “subjective decision”

http://www.dilbert.com/

decision justification is essential!

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Identifying alternative approaches is usually done in the following ways

Researches, especially on past experiences/data

Using brain storming techniques

Identifying alternatives

Using brain storming techniques

• Do it in a team environment

• Include experts and stakeholders like customers

Applying initial screening to limit the number of options for the further selection process

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Selection criteria-ExamplesProduction Time to ready to install Length of disruption during

installation Learning curve-time until full

operation Effects on waste and rejects Energy requirements Facility and equipment requirement Safety of process

Marketing Size of potential market Probable market share Time until market share is acquired Impact on current production line Consumer acceptance Impact on consumer safety Estimated life of output

Administration Meet government safety standard Meet government environmental

standard Impact on information system Reactions of stakeholders Patents and trade secret protection Impact on the reputation

y p Change in raw material usage Availability of raw material Required development time and cost

Financial consideration Profitability, net present value of

investment Impact on cash flows Payback period Cash requirement Time until break-even Size of investment Cost and benefit

Personnel issues Training requirements Labour skill requirement Availability of required labour skills Change on current workforce Change in the size of labour force Communication requirements Impact on working condition

Technology Availability of required technology Impact on current technology level Maintainability

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Several selection methods have been developed and used

The more comprehensive techniques, the more data and effort that are needed for the analysis

Selection method

da a a d o a a d d o a a y

Note again that depending on the method chosen, the selected final alternative may be different Justification !!!


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Non-financial method Check List Scoring Models Cost Effectiveness Analysis

Project selection methods

Analytic Hierarchy Process Financial methods (Module 3) Payback Period Equivalent Worth Method – NPV, EUAW Internal Rate of Return (IRR) Benefit-Cost Analysis

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Lecture outline

Introduction/Selection Process

Check List

Scoring Model


Analytical Hierarchy Analysis

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Simple method: it requires a relatively small amount of information

Appropriate to eliminate the most undesirable or infeasible proposals usually at the early stage of

l i h h il bl d i

Check list

selection process or when the available data is limited.

Usually use a simple “3 point scale”: Good(3), OK(2), Bad(1)

Disadvantage: No difference on the importance among selection criteria.

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Check list - Example

Selection criteria

Option A Option B Option C Option D Option E Option F

Time to market

Risk

2 1 3 1 2 2

1 2 3 1 3 1

Reliability

Patent protection

Efficiency

Eliminate Plan D and F for further consideration

11 9 11 6 12 6

3 1 2 2 2 1

2 2 1 1 3 1

3 3 2 1 1 1

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Lecture outline


Check List

Scoring Model



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In check list model - no differences in the importance among the selection criteria.

However, in practical cases, some selection criteria would be more important than other criteria.

Scoring model

For example, in some products (like mobile phones, or mp3 players) “time to market” is more important than “efficiency”.

Scoring model adopts “weighting factors” to address this issue.

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1. Identify all possible alternatives

2. Determine the selection criteria depending on the requirements of the project

Scoring model - Process

3. List all selection criteria in a descending order of importance: From the most important to the least important

Note that the order of the weights is still subjective justification required

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Scoring model - Example

Selection criteria

Order of importance

Time to market

Risk

1

2

Selection criteria

Time to market

Risk

Reliability

Patent protection

Efficiency

4

5

3

Efficiency

Reliability

Patent protection

Reordering

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4. Assign the least important criterion a weight of 10

5. Assign a numerical weight to each criterion depending

h h l i


Selection criteria weight

Time to market

Ri k

40

on how each selection criterion is relatively important to the least important one (subjective measure).

6. Then add all weights

Risk

Efficiency

Reliability

Patent protection

Total 125

10

15

30

30

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7. Divide each weight with the sum of all weights normalised weight


Selection criteria weight

Time to market 40

Risk 30

normalisedweight

40/125=0.32

30/125=0.24

Note that the sum of all normalised weights should be 1.0

Efficiency 30

Reliability 15

Patent protection 10

Total 125

30/125=0.24

15/125=0.12

10/125=0.08

1.0

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8. Determine the effectiveness score “between 0 and 100” of each alternative depending on its effectiveness for each selected criterion by comparison


comparison.

The higher the effectiveness value, the more effective.

Still subjective decision!

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8099160

WT.WT.WT.WT. EffEffEffEff

Option EOption COption BOption A

0 32

NormalisedWeight

Time to market

Criteria

1

99

85

99

80

50

1

90

90

99

90

80

1

30

1

99

30

99

1

60

1

0.08

0.12

0.24

0.24

0.32

Patent Protection

Reliability

Efficiency

Risk

Time to market

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9. Multiply the normalised weight with the effectiveness value for each alternative in the list this is “the weighted effectiveness score”of each alternative in each selection criterion


of each alternative in each selection criterion.

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8099160 25 6

WT.

31 7

WT.

0 32

WT.

19 2

WT. EffEffEffEff


0 32

NormalisedWeight

Time to market

Criteria

1

99

85

99

80

50

1

90

90

99

90

80

1

30

1

99

30

99

1

60

0.08

11.9

20.4

23.8

25.6

4

0.12

21.6

22.8

31.7

7.2

9.6

0.24

7.2

0.32

7.9

3.6

23.8

0.24

19.2

1

0.08

0.12

0.24

0.24

0.32

Patent Protection

Reliability

Efficiency

Risk

Time to market

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10. Add the weighted effectiveness scores together to get the total effectiveness for each alternative

11. Choose the best one: the higher the total


weighted effectiveness score, the better the project

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8099160 25 6

WT.

31 7

WT.

0 32

WT.

19 2

WT. EffEffEffEff


0 32

NormalisedWeight

Time to market

Criteria

81.880.224.654.7Total Effectiveness

1

99

85

99

80

50

1

90

90

99

90

80

1

60

1

99

30

99

1

60

0.08

11.9

20.4

23.8

25.6

4

0.12

21.6

22.8

31.7

7.2

9.6

0.24

7.2

0.32

7.9

3.6

23.8

0.24

19.2

1

0.08

0.12

0.24

0.24

0.32

Patent Protection

Reliability

Efficiency

Risk

Time to market

Chosen

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Lecture outline


Check List

Scoring Model



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In most cases, the more investment cost the greater returns.

If the investment cost is fixed or limited, it is

Cost effectiveness analysis

better to know the effectiveness of cost for aproject Cost-effectiveness (C-E) analysis.

Basically to decide whether it is worth“spending” more money to do work “moreeffectively”.

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Just assume the costs are given as follows:

WT.WT.WT.WT. EffEffEffEff

Option EOption COption BOption ANormalisedWeight

Criteria

81.880.224.654.7Total Effectiveness

1

99

85

99

80

50

1

90

90

99

90

80

1

60

1

99

30

99

1

60

0.08

11.9

20.4

23.8

25.6

4

0.12

21.6

22.8

31.7

7.2

9.6

0.24

7.2

0.32

7.9

3.6

23.8

0.24

19.2

1

0.08

0.12

0.24

0.24

0.32

Patent Protection

Reliability

Efficiency

Risk

Time to market

Criteria

Costs 350K300K250K450K

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Calculate the normalised figures for both cost and total effectiveness and compare the result!

Firstly, the normalised cost


Alt ti C t N li d C tN li d C tAlternative Cost Normalised Cost

A 450K

B 250K

C 300K

E 350K

Total 1350K

Normalised Cost

450K/1350K=0.3333

250K/1350K=0.1852

300K/1350K=0.2222

350K/1350K=0.2593

1

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Secondly, the normalised total effectiveness


Alternative Total effectivenessNormalised Total effectiveness

A 54 7

Normalised Total effectiveness

54 7/241 3=0 2267A 54.7

B 24.6

C 80.2

E 81.8

Total 241.3

54.7/241.3=0.2267

24.6/241.3=0.1019

80.2/241.3=0.3324

81.8/241.3=0.3390

1

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Then calculate the ratio between normailisedeffectiveness and normalised cost to find the best one.


AlternativeNormalised Total effectiveness

NormalisedCost

Effectiveness/ Cost ratioEffectiveness/ Cost ratio

A 0.2267 0.3333

B 0.1019 0.1852

C 0.3324 0.2222

E 0.3390 0.2593

Alternative C is chosen even though it is a bit less efficient but it costs less more cost effective.

0.2267/0.3333=0.6802

0.1019/0.1852=0.5502

0.3324/0.2222=1.4959

0.3390/0.2593=1.3014

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Selection process is

to be continued into be continued in

Module 3B

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