Organizations invest huge sums of money on new projects. It is important for organizations to ensure that these investments are safe and will result in good returns and benefits for the organizations. Hence there is a need for analyse all new project opportunities to justify the decisions for making the needed monetary investments. An organization may be having multiple project opportunities to invest on and reap the benefits. But they cannot invest on all projects, they have to be selective.
The process of analysing the new project opportunities to decide which ones will be worthwhile taking up so that organization gets the most benefits is known as project selection methods.
There are two major categories of project selection methods as below:
Benefits measurement methods mostly use a comparative approach by studying the possible benefits from different projects and then selecting the most beneficial ones. Some of the most important methods under this category include the following:
These methods are mathematical models of project selection which are used for larger projects that require complex and comprehensive calculations and simulations to study the feasibility of projects by understanding the uncertainties involved clearly. Some of the important constrained optimization methods include the following:
Many times project selection is done based on non-financial considerations. These may include political reasons, personal biases, safety and security considerations, investor and customer requests etc.
Project selection is one of the most important steps before taking up any new project investment decision. Project selection study will be done by professionals with solid knowledge in these methods. Both quantitative and qualitative methods are used for project selection. Organizations can define clear guidelines for project selection procedures and methods to be used.
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