Marion, J. (2018). Project Selection.

En Project Management:a common sense guide to the PMBOK,

Part One - Framework and schedule (pp. 25 - 41). New York: Momentum Press. (C71140)

CHAPTER 2

Project Selection

2.1 WHAT SHOULD BE DONE? DECIDING UPON

THE RIGHT PROJECT

When a project manager begins a project, it is assumed that the purpose

of the project and the underlying rationale for the effort is clear. Unfortu-
nately, this is not always the case—especially in companies that routinely
commission projects to produce deliverables such as new products and
services for the marketplace. With so many different project options from
which to choose, how does a company select the best one? Making this
decision is rarely easy—and this is why project selection is approached
in a systematic way. Project selection is often visualized as a “funnel.”
A ­funnel is very wide at one end, and very narrow at the other as is
observed in Figure 2.1.
Likewise, the set of all possible projects that a company could under-
take is potentially very large. However, the funding available to pay for
projects is limited. The limited funding is what makes the funnel narrow
rather than wide. The objective of an organization therefore is to vet the
large population of potential projects so that only a very few projects are
chartered. Those projects that survive the vetting process are those that are
most likely to be successful. Selecting projects does not end at the project
charter. As the project progresses through its life cycle it is vetted at each
phase in order to ensure that the original assumptions about the project and
its likelihood of success remain sound.

2.2 STRATEGY: KNOWING “WHY” COMES

BEFORE WHAT

Projects produce deliverables—and companies that commission projects

to produce these deliverables do so in order to contribute in some way, no
26  •   PROJECT MANAGEMENT

Multiple project
opportunities

Strategic
criteria

Projects

Figure 2.1.  Project opportunity screening.

matter how small, to the overall mission and objectives of the company.
A project is considered an investment in time, effort, and money. When
a company invests money, it does so in pursuit of its mission to achieve
and maintain a competitive advantage within the markets it serves. The
term “competitive advantage” is a reference to competitive positioning.
A company is better able to succeed when it is well positioned compared
with those against whom it competes. A company is considered to be well
positioned when it is able to set the price level for its products and main-
tain it—while at the same time—minimizing its costs. Michael Porter, a
well-known strategist from the Harvard Business School, informs us that
companies that are best able to do things such as minimize competition
and rivalry, minimize the threat of substitutes, and keep new entrants out
of the marketplace have the power to set their prices and minimize their
costs. They do so because they are said to be well positioned in terms of
Porter’s strategic model. To use an analogy drawn from the military, imag-
ine a platoon preparing to engage with the enemy. The platoon leader will
survey the surrounding environment to find the best position within the
field of battle. A hill is a position that is likely to be preferred over a valley.
A mediocre platoon may still have a strong chance of winning the battle if
it fights from the hill rather than the valley. Fighting from a hill provides
 Project Selection  •  27

Strong
strategic
position

Weak
position

Figure 2.2.  Strong and weak strategic positions.

an almost “unfair advantage” that may be exploited. This is graphically

illustrated in Figure 2.2.
Returning to the business arena and using an analogous example,
during the housing crisis of 2007, a home buyer would be far better posi-
tioned strategically than a home seller. The individual trying to sell the
home may well have an excellent product that includes many different
upgrades. However, since the seller is poorly positioned, the seller has
little power to obtain the desired price. The difference in power between
buyer and seller seems unfair—in the same way that “fighting from a hill”
is. However, this is simply a result of strategic positioning. A similar situ-
ation exists between consumer electronics manufacturers and electronics
distributors. A large nationwide retailer has the choice of many ­electronics
manufacturers from which to choose. Because of this, the retailer has
more power to set prices than the manufacturer.
Every company therefore has a fundamental approach that it employs
in order to seek the optimal position within its competitive landscape. All
operations, products produced, and projects in which the company play
a role in achieving the company’s competitive positioning strategy. The
first rule therefore for selecting the optimal project for which to invest is
to deeply understand the strategy of the company both in terms of what it
is as well as how it works. Managers involved in project selection must
therefore be able to readily answer the question of “Just what is it exactly
are we trying to do here, and why?” If this question cannot be answered, it
is not possible to choose an optimal project from a range of possibilities.
28  •   PROJECT MANAGEMENT

2.3  STRATEGIC ALIGNMENT

The term alignment suggests that elements put “in alignment” must be
ordered so that they are all facing, or pointing to the same direction. Stra-
tegic alignment uses this concept—but in terms of activities carried out by
the organization. All initiatives, tasks to be carried out, deliverables to be
produced—as well as projects—must “point in the same direction” as that
indicated by the strategy of the company. It follows then that when a com-
pany selects an optimal project for execution, it will be a project that is
considered to be in alignment with the company mission. It further follows
that the degree of alignment of a project with the mission of the company
is obvious. This is not always the case—which is why tools are applied to
make the degree of alignment clear.

2.4  HOW TO NARROW DOWN PROJECT CHOICES

The concept of alignment provides the project manager with only a start-
ing point for deciding upon which projects to fund and execute, and which
to discard. It is only a starting point because the degree of strategic align-
ment of each project proposal must be determined. There are many differ-
ent ways to do this including the application of judgment using qualitative
tools, as well as analytical techniques that apply quantitative measures to
assess the degree to which the project fits the goals spelled out in the strat-
egy of the company. Often the process begins with a qualitative approach
by quickly weeding out projects that obviously do not fit well with the
company mission. Eventually the vetting process leads to a small number
of projects that on the face of it, all seem to satisfy company strategic
requirements. It is at this point where the application of tools becomes
more advantageous by making small but important differences clear for
the purpose of decision making.

2.5  QUALITATIVE SELECTION TOOLS

An experienced project manager with a long career within a particular

company is usually very familiar with the company strategy and culture.
In this case, the application of judgment may be all that is needed to select
projects that make sense to pursue and which do not. Not all project man-
agers have this skill or background. As a result, the collective expertise
and judgment of the company may be gathered together in the form of a
 Project Selection  •  29

strategic checklist. Often a checklist used for this purpose is developed

over a long period of time by successive project managers and executives
who have selected and delivered successful projects. The checklist then
forms part of the vetting process, and as such, becomes what the Guide to
the Project Management Body of Knowledge (PMBOK) framework refers
to as “Organizational Process Assets (OPA).” Further, how the checklist
is used, who uses it, and when it is used may become part of the culture
of the company. The PMBOK uses the term “Enterprise Environment
Factors (EEF)” to describe the cultural and environmental dimension of
the company. Project managers will recognize OPA and EEF as inputs to
important PMBOK processes.
The purpose of the strategic checklist is to compare the goals of the
project and its proposed results with the strategic goals of the company.
When the checklist method is used, the more elements in the checklist that
the project satisfies, the more that the project is said to be in alignment
with company strategy. An example of a strategic project selection check-
list is provided in Box 2.1.

Box 2.1.  Strategic project selection checklist

1. Does this project meet the company objectives for financial

return?
2. Does this project address markets that the company deems to be
important?
3. Does this project make strategic use of company resources?
4. Is our company capable of developing and delivering this project?
5. Does the company have adequate funding to deliver this project?
6. Is this project consistent with the company mission, vision, and
values?

One problem with using a strategic project selection checklist is that

it weights all elements of the checklist equally. It is not often the case that
all elements within a checklist would be considered to be equally import-
ant. A weighted checklist provides the project manager with the means
for putting greater emphasis on some elements versus others. Instead of
simply indicating the presence or absence of an important strategic factor,
the project manager—and perhaps the project team and executive spon-
sors—may apply weights to each strategic factor. The weighting of each
category is derived from the emphasis each category is given in the strat-
egy of the company. Each score is then multiplied by the weight of each
30  •   PROJECT MANAGEMENT

Table 2.1.  Weighted project selection checklist

Project (A, B, C) Weight Score Total
Financial returns 0.3
Markets 0.1
Strategic resources 0.2
Capabilities 0.2
Funding 0.1
Mission consistency 0.1
Total 1

element and total. Multiple projects are then compared against each other
based upon the total weighted score for each. An example of a weighted
project selection checklist is provided in Table 2.1.
Although the weighted selection checklist uses numbers—this does
not necessarily mean that the method is considered to be a quantitative
method. This is because the numbers used for scoring and weighting are
based upon the collective subjective judgment of the management team.
The numbers are therefore interpreted as relative measures of emphasis—
rather than absolute quantitative measures.

2.6  QUANTITATIVE SELECTION TOOLS

Selecting a project that aligns with the strategy of the company is import-
ant—but it may be only a beginning. For example, companies often have
multiple possible choices of projects from which to choose that each align
with the strategy of the company. What should a project manager do if
(and likely when) this happens? The next level of consideration usually
involves determining if the project will result in financial rewards. There
are a number of techniques that may be applied in order to make this
determination—and different companies will likely use different methods.
Each of the analysis techniques are designed to answer questions that lead
to project selection decisions.

2.7 PROJECT SELECTION QUESTIONS AND

ANALYSIS TECHNIQUES

The first question of interest from a project manager seeking to understand

the viability of a possible project selection is:
 Project Selection  •  31

If we do this project, how much money will we make?

The amount of money made is simply the total revenues generated by

the project deliverables less the cost of the project (including overhead) as
well as the costs of the deliverables. This may be easily expressed in the
form of a formula:

Total project revenues - (Total cost of project + Total cost of project

deliverables) = Money made

While it is true the project managers seek to make money, it is also

true that they want to avoid losing money—and they seek to recover
the initial project investment as soon as possible. This leads to the next
important project evaluation question, which is:

When can we expect to recover the investment we made in this

project?

Answering when (and possibly if) the project investment will be

recovered is answered by means of the standard formula for the payback
period. At a high level, the payback period formula is given as:

Project payback period = Total project cost ÷ (Project deliverable

­revenues - Cost of project deliverables per period)

Although this is a rather simple formula, calculating the payback

period may be complicated in practice. This is because the exact revenues
and the cost of project deliverables may be difficult to project or even cal-
culate depending upon the nature of the deliverables and the accounting
system of the company.
The simple payback period is intended to be simple and because of
this, it ignores the complexity of the time value of money (TVM). In proj-
ects with relatively low up-front costs and high sales and gross margins—
the TVM may prove to have negligible impact since the recovery period of
the investment will as a result be rather short. Longer-term projections that
include a great deal of uncertainty of cash flows and gross margins may
benefit from the use of TVM in the payback period calculation in order to
obtain a more realistic picture.
32  •   PROJECT MANAGEMENT

2.8 THE TVM: WHAT DOES IT MEAN?

Understanding TVM in the project selection process is simple if you start

from a familiar financial scenario. For example:

$100 in your pocket today will be worth more tomorrow if you put it
in the bank and it earns interest.

How much more? If we assume 5 percent interest, then $100 in your

pocket today (and put in the bank) will be worth, in one year:

$100 * 1.05 = $105.00

The difficulty of incorporating the time TVM in project selection sce-

narios is the understanding of this simple financial scenario in the reverse
sense. For example:
What if you didn’t have $100.00 today, but someone promised to give
you $100.00 one year from now? The question now becomes:

How much is “$100.00 promised in one year actually effectively

worth today?”

Assuming that we could have earned 5 percent interest by putting it

in the bank for a year, then the value of $100.00 promised one year from
now is effectively worth:

$100.00 ÷ 1.05 = $95.24

Said another way,

If I put $95.24 in the bank today earning 5 percent, in one year it

would equal $100.00

As can be observed in the formula for “discounting” future cash to the

present, the formula is reversed from that of banking $100 and calculating
the one-year interest. This simple scenario however ignores the fact that
cash flows from projects typically continue beyond one or more years.
Multiyear cash flows from project deliverables complicate the TVM cal-
culation, but once the algorithm is understood, it is a simple process to
discount multiple future cash flows to the present.
 Project Selection  •  33

To begin with understanding multiyear TVM, we can start at the

beginning and assume that we are putting $100 in the bank at 5 percent
interest for several years. In this case, we have the following:

One year: $100 * 1.05 = $105.00

Two years: $100 * 1.05 *1.05 = $110.25

Three years: $100 * 1.05 * 1.05* 1.05= $115.75

In multiyear TVM, the principle that is invested, plus the interest it

accrues, feeds the next period. Interest is therefore earned not only on
principle, but on the interest of previous periods. This is the principle
of “compounding” that naturally leads to significant growth of an initial
monetary stake over time. In mathematical shorthand, these equations
tell us that the money in your pocket today, multiplied by the discount
rate raised to the power of the number of periods, equals the final value
of your deposit. Expressing this mathematically leads to the following
formula:

Money * Rate ^ Period n

For example, using the previous example for three years but employ-
ing the simpler formula, we have:

Three years: $100 * 1.05 ^ 3 = $115.75

To reverse the process, it could be asked, “What is the value today of

$100 promised three years from now?” The answer comes from reversing
the process of calculating the value of a deposit within three years and
“discounting to the present.” This is done as follows:

$100.00 ÷ (1.05) ^ 3 = $100 ÷ 1.16 = $86.38

What if the going rate of interest was not 5 percent—but instead—it

was 10 percent? In this case we would have:

$100.00 ÷ (1.10) ^ 3 = $100 ÷ 1.33 = $75.13

34  •   PROJECT MANAGEMENT

There are some observations that can be made by comparing the value
of $100 promised three years from today versus one year from today, as
follows:

1. The longer the waiting period for the promised money, the less it
is worth today.
2. The higher the discount rate, the less the money is effectively worth
today.
3. The higher the discount (or “hurdle”) rate, the more money the proj-
ect will need to generate in order to compensate for the higher rate.

From these simple observations, it is clear that regardless of the proj-

ect scenario being considered, “Early money is better than late money,”
meaning, that it is preferred for projects to return money sooner rather
than later—regardless of the TVM. Also, we observe that in times of high
discount rates—or in times when the project is assigned a high discount
rate due to its relative high risk—the project must “work harder” in order
to prove its worthiness as an investment.

2.9 HOW IS TVM APPLIED TO THE PAYBACK

PERIOD CALCULATION?

If TVM is taken into account when using the payback analysis, then the
cash from project deliverables (less the cost of project deliverables) is
simply discounted to the present. Again, this is useful for presenting a
more accurate assessment of the payback when future cash flows are less
certain and the initial investment is high. In simpler cases, TVM may be
dispensed with when calculating TVM. What would constitute a “simpler
case?” An example would be a project whose payback timeframe is short
compared to its project life cycle. A project that produces deliverables that
lead to profits that pay back the initial investment within one to two years
need not be overly concerned with the TVM. However, projects that are
not expected to pay back within 5 to 10 years, and include widely spaced
and inconsistent cash flows would likely benefit from the incorporation of
TVM within payback analysis.

2.10  RISK AND REWARD IN PROJECT SELECTION

An important question that is asked in the project selection goes beyond

the payback period in order to consider if the project is worth doing in
light of the risk. The question asked is:
 Project Selection  •  35

Are the forthcoming rewards consistent with the risk undertaken?

Risk and reward in project selection is considered using TVM tech-

niques with specific emphasis on the discount or hurdle rate. This is simply
another way of expressing the fact that a project that has more at risk must
produce more return. In life, we see the discount rate difference when we
examine the cost of a mortgage loan (which guarantees the payback of the
loan via the collateral of the house) versus a credit card charge that has no
collateral backing. The default risk of the credit card loan is higher than
the default risk of a mortgage loan. As a result, the interest rate charged
in a credit card loan is much higher—often several times higher than a
mortgage loan.
The same principle applies to project selection which is in effect a
decision regarding the determination of which project to invest. A high-
risk project must be judged using a higher return on investment (RoI) than
a low risk project. What rate of return then should a project manager seek
and how is this rate determined? This is a question that the company Chief
Financial Officer (CFO) can play a role in answering. The CFO knows the
rate that the company pays for its funding. This rate is derived from the
weighted average of the mix of debt and equity financing used by the com-
pany. This rate, known as the WACC (Weighted Average Cost of Capital)
will likely not be the same as the hurdle rate or return rate required for the
project. The reason is that the project is likely to exhibit more risk than
the company as a whole. Therefore, the required return rate for the project
would necessarily need to be higher. Again, the specifics of this rate are
derived from a consideration of the strategy of the company as communi-
cated by senior management.
One of the most important questions to be asked in selecting projects
is:

What is the return on the money invested in this project and how does
it compare with the return on secure financial instruments?

There is both a simple as well as a complex answer to this question.

The simple answer is to compare the total profit of the project deliverables
to the expense of creating the deliverables. For example, if the project cost
is $100,000.00 and the resulting profits are $110,000.00, then the ROI is
10 percent. Why does ROI matter? It matters because the more capital that
is at stake, the greater the resulting return that is expected. This goes hand
in hand with risk versus reward.
There is a more complex answer to this question and it involves con-
sidering TVM, and the comparison of the overall project return to the
36  •   PROJECT MANAGEMENT

return offered by a similar, but more secure, financial instrument. To put

it in simple terms, the Net Present Value method (or NPV) not only con-
siders the project return based on TVM, but it also answers the question:

Should I invest in this project, or should I just put my money in the

bank?

The NPV project selection and evaluation procedure is a step-by-step

process and works as follows:

1. Estimate the project cash outlays required to produce the project

deliverables.
2. Estimate the future cash flows associated with the profits from the
project deliverables.
3. Discount the future cash flows to the present (the Present Value
(PV) portion of the NPV process).
4. Combine the present value of future cash flows with the estimate
project outlay of the present (the N or Net portion of the NPV
­process).
5. Assess whether the result is positive, zero, or negative.
a. Positive: This means that the present value of future cash flows
associated with project profit cash flows—discounted to the
present—is greater than the amount invested. Also, it can be
said to exceed the project’s discount rate. A positive NPV is
therefore money well spent.
b. Zero: A zero NPV means that the present value of future cash
flows associated with project profit cash flows—discounted
to the present—is the same as the amount invested. Also, the
returns can be said to equal the returns consistent with the
project’s discount rate. A zero NPV infers that the project
­
returns no more than the required discount rate. The implication
of a zero NPV is that the return of the project is no more than
that which could be earned in a secure financial instrument—for
example—“putting it in the bank” to use the vernacular.
c. Negative: This means that the present value of future cash flows
associated with project profit cash flows—discounted to the
present—is less than the amount invested. Also, it can be said to
produce returns less than the project’s discount rate. A negative
NPV is therefore money not very well spent. The implication is
that funds intended to be invested in this project would be better
utilized in other projects.
 Project Selection  •  37

What does it all mean? When a project manager selects from a number
of projects—the optimal choice from a purely risk and reward perspective
would be the project with the highest NPV. In simple terms, positive NPVs
result from projects that produce returns above the required ­project dis-
count rate. The higher the NPV, the greater the return exceeds the project
discount rate. An NPV of zero indicates that the project returned ­profits
sufficient to equal the required project discount rate. Although zero is
considered acceptable—it may be a question mark for project selection.
Because the project result is only an estimate—it is not difficult to imag-
ine a scenario when the future expected cash flows are less than expected.
In this case, the zero NPV could shift to a negative value depending on
events and circumstances. Finally, a negative NPV is an indicator that the
project returns less than the return targeted by the discount rate. In most
cases—this is an indicator that the project should be rejected. However,
negative NPV projects might be selected if some higher level strategic
reason exists for pursuing the project. A project that is commissioned sim-
ply to produce a placeholder product in the market or to maintain market
share may be one example of a strategic reason to pursue a project with a
negative NPV.

2.10.1  AN NPV EXAMPLE…

Assume a project that cost $100,000.00, but returns $15,000, $25,000,

$40,000, $45,000, and $50,000 in Years 1 to 5. What is the NPV given a
5 percent discount rate? Is the project “worth it?” An inspection of the NPV
table shows that the project is very much “worth it.” The project returns
$47,712.87 more than its discount or hurdle rate of 5 percent (Table 2.2).
What if, however, the project projected the same cash flows—how-
ever—the case flows would occur later in Years 1 to 5. Should a project
manager continue to select this project?
An inspection of Table 2.3 illustrates that, although the NPV is lower,
it remains very high. Project managers would take note that as a principle,
the longer that project sponsors have to wait for cash flows—the lower the
NPV will be. This is because the longer investors have to wait for prom-
ises of cash in the future—the less that the money is valued today due to
the exponential property of discounting.
Finally, what if the sponsors of the project are concerned about the
lack of cash flows in Years 1 and 2, and as a result, request a higher dis-
count rate? In Table 2.4, the rate of 15 percent is suggested given the risk
concerns. By inspection, the NPV has gone marginally negative—thereby
Table 2.2.  An NPV example
Cash outlay Year 1 Year 2 Year 3 Year 4 Year 5
$100,000 CF $15,000 $25,000 $40,000 $45,000 $50,000
Net Discount 1.05 1.1025 1.1576 1.2155 1.2763
$47,712.87 PV $14,285.71 $22,675.74 $34,553.50 $37,021.61 $39,176.31

Table 2.3.  Impact of delayed cash flows on the NPV

38  •   PROJECT MANAGEMENT

Cash outlay Year 1 Year 2 Year 3 Year 4 Year 5

$100,000 CF $55,000 $55,000 $65,000
Net Discount 1.05 1.1025 1.1576 1.2155 1.2763
$43,688.90 PV $34,553.50 $37,021.61 $39,176.31

Table 2.4.  Higher risk reflected in the NPV discount rate

Cash outlay Year 1 Year 2 Year 3 Year 4 Year 5
$100,000 CF $55,000 $55,000 $65,000
Net Discount 1.15 1.3225 1.5209 1.7490 2.0114
-$73.69 PV $34,553.50 $37,021.61 $39,176.31
 Project Selection  •  39

making the new series of cash flows and higher discount rate a question
mark in terms of project selection.

2.11 ANOTHER VIEW OF RETURN—THE

INTERNAL RATE OF RETURN (IRR)

The NPV returns three possible results—positive, zero, and negative. The
NPV therefore is a comparative measure that examines how the project
performs by comparison to a given target discount or hurdle rate. Another
way to evaluate a project however is to determine its effective return rate
known as the IRR. The formula for the IRR is rather complex—although
the formula is embedded within Microsoft Excel and does produce the
correct result when used correctly. However, a project manager who first
performs and NPV may easily determine the IRR in a spreadsheet by
adjusting the discount rate until the NPV becomes exactly (or at least very
close to) zero. The discount rate at an NPV of zero is the IRR. Revis-
iting Table 2.4 shows a slightly negative NPV. This infers that the dis-
count rate applied was in fact very close to the IRR rate since it is close to
zero. Adjusting the discount rate to 14 percent returns a positive NPV of
$3,446.81. This informs the project manager that the IRR is between 14
and 15 percent—and likely very close to 15 percent. Granted, this is a ball-
park IRR figure—but—project selections involve estimates and judgment
including the estimation of the investment level, timing of cash flows, and
choice of discount rate. Finding the IRR in this way makes it a simple pro-
cess to work hand in hand with the NPV calculation in project selection.

2.12  RETURNING TO THE ORIGINAL QUESTION…

After carefully evaluating a number of possible projects using both

qualitative and quantitative selection remains, “Which project should
be selected?” Although the final answer may be difficult to answer with
perfect clarity—the fact that the question is being asked is an important
first step. In all things project management—anything to be done must be
first planned. One of the objectives of the project selection process is to
ensure that projects are not commissioned by the organization in an ad hoc
manner. Instead, possible projects should be evaluated in terms of their
alignment with company strategy and in terms of the potential for rewards
consistent with the risk undertaken. Project selection techniques provide
the means to make this assessment.
40  •   PROJECT MANAGEMENT

2.13 NUMBERS DO NOT ENSURE UNBIASED

RESULTS

The use of financial techniques in project selection often gives the

impression that the selection of the project is without bias and it is wholly
scientific in its methodology. Nothing could be further from the truth. The
project manager should be aware of the shortcomings associated with
the use of financial selection methods. The shortcomings relate to the
underlying assumptions made in the analysis. For example, it is easy to
create a financial analysis that causes a poor project to be selected. This
can be done by selecting an abnormally low discount rate. Recall that the
higher the discount rate, the harder that the project must work (in terms
of future cash flow generation) in order to demonstrate its merit. The
reverse is also true. Set too low—the discount rate can make a bad idea
look better than it actually is. Also, beware of a financial analysis that
rejects a promising project due to the selection of a discount rate that is
too high. An abnormally high discount rate effectively forces a project to
work harder than it needs to in order to justify its existence. The lesson
for project managers is that project selection is a time for asking ques-
tions. When financial selection techniques are used, the first question to
be asked is “Where did that discount rate come from—and how was it
derived?” Finally, regardless of the chosen discount rate—it pays to chal-
lenge future cash-flow assumptions. The future is always uncertain—so
the project selection process would benefit from the use of conservative
future cash flow estimates.

2.14 CHAPTER 2: IMPORTANT “TAKEAWAYS” FOR

THE PROJECT MANAGER

• Understanding company strategy is an essential element of project

selection.
• Project opportunities are many, but strategically aligned projects
that are likely to be successful are few.
• Project selection involves both qualitative as well as quantitative
methods.
• The checklist selection method compares projects against a list of
strategic criteria.
• A weighted scoring model mirrors the project selection checklist
method—but weights some strategic criteria higher than others.
 Project Selection  •  41

• Multiple financial methods exist for selecting projects. These

include, but are not limited to the ROI, the payback period, the
NPV, and the IRR.
• Financial methods generally weigh the expense of the project
­compared to the promise of future cash flows.
• The discount rate is an important component of financial selection
methods.
• High discount rates generally reflect project risk and force the
­project to produce higher returns in order to justify selection.
• Lower discount rates are a general indicator of lower project risks.
• The choice of discount rate highly influences the project selection
result and should therefore be closely inspected to ensure the right
balance of risk and reward is being applied.