The two main methods for selecting projects within organizations are on the basis of benefit to organizations and on the basis of resource constraints. When an organization has several projects for consideration, they can choose one or more by evaluating what benefit each of these projects is able to add to them. On the contrary, they might be forced to drop one or more by evaluating if they meet the resource requirement of each. The following are the ways an organization can weigh the benefits of a project or determine if they meet the resource requirements.
The organization may have to choose between one project or the other; but not both. In such a situation, the organization will have to forego the benefits that would have been yielded by one project so as to undertake the other. Opportunity costs are not desirable at all; so, the organization will choose the least available. However, opportunity cost alone is not very meaningful. It might only be useful after running other criteria.
Benefit cost ratio
This ratio represents the value of investments into the project and the expected returns from the project. A good project is one with higher returns than investments since a project with an investment like any other business where profit is the key word (Elango et al., 2015). Therefore, from among a list, an organization will prioritize projects according to their benefit cost ratio.
An organization may be interested in long term benefits or short term benefits of a project. In that case, the consideration of how long it will take for the project to return the investment made becomes an important factor. Typically, an organization will prefer shorter a payback period.
Net present value
The net present value is a very significant determiner of the worthiness of a project. It is the difference between the project’s total cash inflows and outflows. When there is more cash inflows than outflows, the net present value of the project will be positive. An organization cannot consider a project with a negative net present value (Leyman & Vanhoucke, 2016). Furthermore, a higher positive net present value is more desirable.
Using a scoring model
A scoring model becomes important when the organization has its own criteria and none of the above methods satisfy their motivations for change. A scoring model will lay out certain characteristics against which each of the projects will be measured. The best projects are those that satisfy each criterion to a high extent. Therefore, if the organization is using a scoring model, it will select the project with the highest score; that is, the one that satisfies most of the criteria to the highest extents.