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Project Managment

Autor:   •  April 28, 2012  •  Essay  •  859 Words (4 Pages)  •  2,618 Views

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Discuss the rationale why organizations should not solely rely on ROI to select projects.

Financial criteria, like ROI alone, will not ensure that selected projects contribute to the mission and strategy of a firm. Other considerations such as developing new technology, public image, brand loyalty, ethical position, and maintaining core competencies should be considered. Furthermore, it is difficult or next to impossible to assess ROI for many important projects (e,g., Y2K projects). While ROI is likely to be a key consideration for many organizations, multiple screening criteria are recommended for selecting and prioritizing projects.

Two new software projects are proposed to a young start-up company. The Alpha project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, select one of the two project options and identify what you think the cash flow will be. Make sure that you explain your answer using concepts and terminology covered in the text.

The project that has a better cash flow standpoint using the payback period would be the Alpha project. According to the Payback Period, the rate of return on an investment is greater with the Alpha project verses the Beta project. It would take approx 3.75 yrs to “repay” the sum of the original investment for the Alpha project whereas for the Beta project, the rate of investment would take approx 4 years. The company would see their investment back much sooner if they went with the Alpha project.

• Payback = Investment / Annual Savings

• Project Alpha: $150,000 / $40,000 = 3.75 years

• Project Beta: $200,000 / $50,000 = 4.0 years

• Project Alpha is the better payback.

Larson, E. W., & Gray, C. F. (2009). Project management: the managerial process (Custom ed.). New York, NY: McGraw-Hill Irwin

Provide an example of a project that would be ideally suited to each type of matrix (weak, balanced, and strong).

Weak matrix: there is a formally designated project manager responsible for coordinating project activates. Functional managers call most of the shots and decide who does what and when the work is completed.

Balanced matrix: classic matrix in which the project manager is responsible for defining what needs to be accomplished while the functional managers are concerned with how it will be accomplished. The


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