Download - 03A PPC Online Module3
2013-01-16
1
Module 3 - Project SelectionPart A
Dr. Sang-Heon LEE
School of Advanced Manufacturing and Mechanical Engineering
University of South Australia
MFET 5040
1/38
COMMMONWEALTH OF AUSTRALIACopyright Regulations 1969
WARNING
Copyright NoticeDo not remove this notice
This material has been produced and communicated to you by or on behalf of the University of South Australia pursuant to Part VB of the
Copyright Act 1968(the Act).
The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act.
Do not remove this notice.
2/38
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
2013-01-16
2
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
4/38
Introduction/selection process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytic Hierarchy Process
5/38
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
2013-01-16
3
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.
Images from http://office.microsoft.com/en-au/images/ 7/38
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
2013-01-16
4
Lecture outline
Introduction/selection process: ContinuedCheck List
Scoring Model
Cost Effectiveness Analysis
Analytic Hierarchy Process
10/38
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!
12/38
2013-01-16
5
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
13/38
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
14/38
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 !!!
Images from http://office.microsoft.com/en-au/images/ 15/38
2013-01-16
6
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
16/38
Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
17/38
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.
18/38
2013-01-16
7
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
19/38
Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
20/38
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.
21/38
2013-01-16
8
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
22/38
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
23/38
4. Assign the least important criterion a weight of 10
5. Assign a numerical weight to each criterion depending
h h l i
Scoring model - Process
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
24/38
2013-01-16
9
7. Divide each weight with the sum of all weights normalised weight
Scoring model - Process
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
25/38
8. Determine the effectiveness score “between 0 and 100” of each alternative depending on its effectiveness for each selected criterion by comparison
Scoring model - Process
comparison.
The higher the effectiveness value, the more effective.
Still subjective decision!
26/38
Scoring model - Example
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
27/38
2013-01-16
10
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
Scoring model - Process
of each alternative in each selection criterion.
28/38
Scoring model - Example
8099160 25 6
WT.
31 7
WT.
0 32
WT.
19 2
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
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
29/38
10. Add the weighted effectiveness scores together to get the total effectiveness for each alternative
11. Choose the best one: the higher the total
Scoring model - Process
weighted effectiveness score, the better the project
30/38
2013-01-16
11
Scoring model - Example
8099160 25 6
WT.
31 7
WT.
0 32
WT.
19 2
WT. EffEffEffEff
Option EOption COption BOption A
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
31/38
Lecture outline
Introduction/Selection Process
Check List
Scoring Model
Cost Effectiveness Analysis
Analytical Hierarchy Analysis
32/38
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”.
33/38
2013-01-16
12
Cost effectiveness analysis
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
34/38
Calculate the normalised figures for both cost and total effectiveness and compare the result!
Firstly, the normalised cost
Cost effectiveness analysis
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
35/38
Secondly, the normalised total effectiveness
Cost effectiveness analysis
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
36/38
2013-01-16
13
Then calculate the ratio between normailisedeffectiveness and normalised cost to find the best one.
Cost effectiveness analysis
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
37/38
Selection process is
to be continued into be continued in
Module 3B
38/38