Project Management, 2e (Pinto) Chapter 3 Project Selection and Portfolio Management 3.

1 True/False 1) Numeric project selection models, by their very nature, employ objective values. Answer FA!"# $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective &) #very decision model contains both objective and subjective %actors. Answer T,-# $i%% 3 "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective 3) A simpli%ied scorin+ model addresses all the wea(ness o% a chec(list model %or project screenin+. Answer T,-# $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ ,e%lective .) The Analytical /ierarchy 'rocess ele+antly addresses scalin+ issues in criteria and ne+ative utility in alternative scores. Answer FA!"# $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 0) The e%%icient %rontier in a pro%ile model is the set o% options that o%%ers a ma1imum return %or a +iven level o% ris( or a minimum ris( %or every level o% return. Answer T,-# $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ Analytic "(ills

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5) The present value o% money is lower the %urther out in the %uture 4 e1pect to spend it. Answer FA!"# $i%% & "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 7) The reciprocal o% the paybac( period is used to calculate the avera+e rate o% return %or a project. Answer T,-# $i%% & "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 8) 4nternal rate o% return is pre%erable to net present value because 4,, employs a wei+hted avera+e cost o% capital discount rate that re%lects potential reinvestment. Answer FA!"# $i%% 3 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills 9) An options model could be used when %inancial criteria would chan+e si+ni%icantly over time. Answer T,-# $i%% & "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective 13) The most important thin+ to remember when usin+ project selection models is to be consistent and objective. Answer T,-# $i%% 1 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective 11) *ecause projects mana+ed under a project port%olio mana+ement scheme may be independent o% each other, it is not necessary to consider resource use when decidin+ to pursue any sin+le project. Answer FA!"# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective &
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1&) A balanced project port%olio may be interpreted to mean that a sin+le port%olio contains both hi+h and low ris(, low +rowth and hi+h +rowth, and ris(y and sa%e projects. Answer FA!"# $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ,e%lective 13) "uccess%ul project mana+ement %irms rely on home runs and narrowly concentrated e%%orts since speciali:ation creates name reco+nition and mar(et share. Answer FA!"# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 1.) 'ersonnel costs comprise one o% the hi+hest sources o% project e1pense. Answer T,-# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ,e%lective 10) 4% strate+y and port%olio are not in sync, the %irm is poised on the cusp o% success. Answer FA!"# $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 3.& Fill in the *lan( 1) A project selection model that is broad enou+h to be applied to multiple projects has the virtue o% ;;;;;;;;;;. Answer comparability $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective &) 'roject selection model come in two +eneral classes ;;;;;;;;;; and ;;;;;;;;;;. Answer numeric, nonnumeric $i%% & "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective 3
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3) The simplest method o% project screenin+ and selection is developin+ a<n) ;;;;;;;;;; that contains criteria that pertain to a choice o% projects. Answer chec(list $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ ,e%lective .) A simple scorin+ model assi+ns ;;;;;;;;;; to the criteria used to evaluate projects. Answer wei+hts $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ ,e%lective 0) The ;;;;;;;;;; method o% project screenin+ +enerates overall project scores that can be compared meanin+%ully a+ainst each other. Answer Analytical /ierarchy 'rocess <A/') $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 5) 4n project mana+ement, the ;;;;;;;;;; is the set o% project port%olio options that o%%ers either a ma1imum return %or every +iven level o% ris( or the minimum ris( %or every level o% return. Answer e%%icient %rontier $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 7) Financial models are all predicated on the ;;;;;;;;;; principal. Answer time value o% money $i%% 3 "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ ,e%lective 8) The ;;;;;;;;;; screenin+ method may arrive at multiple solutions, which is one reason it is used less widely than the net present value techni=ue. Answer internal rate o% return <4,,) $i%% 3 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective

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9) An or+ani:ation that has some %le1ibility in postponin+ a project and mi+ht be able to ma(e a better decision with in%ormation that would be available at a later date mi+ht ma(e use o% a<n) ;;;;;;;;;; %or project screenin+. Answer options model $i%% 3 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ ,e%lective 13) ;;;;;;;;;; is the systematic process o% selectin+, supportin+, and mana+in+ a %irm>s collection o% projects. Answer 'roject port%olio mana+ement $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill $e%inition AA)"* Ta+ ,e%lective 11) A %irm that o%%sets ris(y ventures with more secure projects or new development ventures with e1istin+ product line cash cows is desirous o% ;;;;;;;;;;. Answer <project port%olio) balance $i%% 3 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ,e%lective 1&) A principle cause o% project port%olio underper%ormance is lac( o% ;;;;;;;;;;. Answer <ade=uate) resources $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 3.3 6ultiple )hoice 1) "ouder>s project screenin+ criterion that indicates an e%%ective model must re%lect or+ani:ation objectives, includin+ a %irm>s strate+ic +oals and mission is called A) realism. *) capability. )) comparability. $) ease o% use. Answer A $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective

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&) A selection model that is broad enou+h to be applied to multiple projects has the bene%it o% A) ease o% use. *) comparability. )) capability. $) %le1ibility. Answer * $i%% & "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective 3) A project screenin+ criterion that allows the company to compare lon+ term versus short term projects, projects with di%%erent technolo+ies, and projects with di%%erent commercial objectives is A) %le1ibility. *) ease o% use )) capability $) realistic Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective .) 4% a model can be applied success%ully by people in all areas and levels o% an or+ani:ation, it is said to possess the trait o% A) capability. *) ease o% use. )) %le1ibility. $) realism. Answer * $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective

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0) An 6*A redesi+n committee spends the better part o% a decade travelin+ the )aribbean to benchmar( +raduate pro+rams at other universities. ?hatever screenin+ model is bein+ used su%%ers %rom poor per%ormance on A) realism. *) capability )) ease o% use $) cost Answer $ $i%% 1 "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective 5) "ouder>s model selection criterion that encoura+es ease o% adaptation to chan+es in ta1 laws, buildin+ codes, amon+ others, is called A) ease o% use. *) cost. )) capability. $) %le1ibility. Answer $ $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective 7) A writer estimates it will ta(e three months to +enerate spi%%y documents to accompany a seminal wor( in operations mana+ement. /e +rossly underestimates the time re=uired and misses his deadline by two months. This estimate was A) objective and accurate. *) subjective and accurate. )) objective and inaccurate. $) subjective and inaccurate. Answer $ $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective

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8) A weddin+ planner allows @13,333 %or %lowers and three wee(s to receive all ,"A's bac( %rom the list o% 733 +uests. *oth estimates are correct within a %raction o% a percent. ?e could describe this %actoid as A) numeric and subjective. *) numeric and objective. )) nonBnumeric and subjective. $) nonBnumeric and objective. Answer A $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective 9) An internal operatin+ issue in project screenin+ and selection is A) e1pected return on investment. *) chan+e in physical environment. )) patent protection. $) the chance that the %irm>s +oodwill will su%%er due to the =uality o% the %inished project. Answer * $i%% & "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective 13) Cuality ris( re%ers to the chance that A) the project relies on developin+ new or untested technolo+ies. *) the %irm>s reputation may su%%er when the product becomes available. )) the wellBbein+ o% the users or developers may decline dramatically. $) the %irm may %ace a lawsuit. Answer A $i%% 1 "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective 11) Dne %acet o% ris( in project screenin+ is A) the chan+e in manu%acturin+ operations resultin+ %rom the project. *) the initial cash outlay. )) the potential %or lawsuits or le+al obli+ation. $) the strate+ic %it o% the project with the company. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective

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1&) Dne project %actor that directly impacts a %irm>s internal operations is the A) e1pected return on investment. *) %inancial ris(. )) need to develop employees. $) impact on company>s ima+e. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 13) A commercial %actor in project selection and screenin+ mi+ht be A) a need to develop employees. *) the li(elihood that users o% the project are injured. )) the lon+Bterm mar(et dominance. $) the impact on the company>s ima+e. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 1.) ?hich statement re+ardin+ project selection is bestE A) Dr+ani:ational reality can be per%ectly captured by most decisionBma(in+ models. *) *e%ore selectin+ any project, the team should identi%y all the relevant issues that play a role in project selection. )) $ecision models must contain either objective or subjective %actors. $) #very decision model has both objective and subjective %actors. Answer $ $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 10) ?hich statement re+ardin+ project selection and screenin+ criteria is bestE A) The most complete model in the world is still only a partial re%lection o% or+ani:ation reality. *) 4t is possible, +iven enou+h time and e%%ort, to identi%y all relevant issues that play a role in project selection. )) $ecision models are either objective or subjective. $) For many projects, more than 83F o% the decision criteria are vital. Answer A $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective

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15) A chec(list screenin+ model does not consider A) whether one criterion is more important than another. *) +overnmental or sta(eholder inter%erence. )) product durability and %uture mar(et potential o% the product line. $) the ris(iness o% the new venture. Answer A $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 17) A simple scorin+ model %or project evaluation re=uires A) importance wei+hts %rom 1 to 13 assi+ned to each criterion. *) score values assi+ned to each criterion in terms o% its ratin+. )) a division o% wei+hts by scores to arrive at a standardi:ed score %or each criterion. $) a summation %or each criterion to achieve an overall criterion score. Answer * $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 18) The simple scorin+ model has this advanta+e over a chec(list model %or screenin+ projects. A) "calin+ %rom 1 to 0 is e1tremely accurate. *) "calin+ models ensure a reasonable lin( between the selected and wei+hted criteria and the business objectives that motivated their selection. )) "calin+ models allow decision ma(ers to treat one criterion as more important than another. $) "calin+ models have been proven to ma(e correct decisions better than 90F o% the time while chec(lists only achieve 83F accuracy. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective

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19) A project mana+er is usin+ a simple scorin+ model to decide which o% %our projects is best, +iven the company>s limited resources. The criteria, importance wei+hts, and scores %or each are shown in the table. ?hich project should be chosenE Project Greenlight Criteria 1 & 3 Run a! 1 & 3 " 1 & 3 Ile#omit 1 & 3 A) 'roject Greenli+ht *) 'roject ,unway )) 'roject H $) 'roject 4levomit Answer $ $i%% & "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 1 & 3 & & 3 1 & 3 & 3 & 1 & 3 & & 1 Importance Weight 1 & 3 Score 3 1 1

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&3) A simple scorin+ model is used to decide amon+ three projects that we>ll call A, *, and ). The total score %or project A is 33, %or project * is &3, and %or project ) is 13. ?hich o% the %ollowin+ statements is bestE A) 4% project A is success%ully completed, it will yield three times the bene%its that project ) would have provided. *) 4% project ) is chosen, the company would bene%it only hal% as much as i% they had chosen project *. )) 'roject ) is better than project * %or this company at this point in time. $) 'roject A is better than project * %or this company at this point in time. Answer $ $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective &1) The %irst step in the Analytical /ierarchy 'rocess A) re=uires supportin+ re=uirements to be combined into level 44 challen+es. *) is analy:in+ the process you intend to improve be%ore underta(in+ any improvement project. )) re=uires "aaty%ication o% the team members. $) consists o% constructin+ a hierarchy o% criteria and subcriteria. Answer $ $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective &&) The pairwise comparison approach A) is a method to split the wei+hts assi+ned to subcriteria. *) is a method to compare pairs o% hierarchies prior to any %urther analysis. )) is a means o% achievin+ all project objectives within the allocated time %rame. $) may be used instead o% A/' i% time is limited. Answer A $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective &3) ?hich statement about the Analytical /ierarchy 'rocess is %alseE A) A/' scores are si+ni%icant. *) A/' can be used to capture choice options that do not yield positive outcomes. )) A/' can improve the process o% developin+ project proposals. $) A/' +roups subcriteria that share the wei+ht o% a common hi+herBlevel criterion. Answer * $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 1&
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&.) The Analytical /ierarchy 'rocess is bein+ employed in a project selection decision. Dne major criteria, cost, receives a wei+htin+ value o% .3F, which is split into shortBterm <03F), intermediate term<33F), and lon+Bterm <&3F). ?hich o% these statements is bestE A) "hortBterm, intermediateBterm, and lon+Bterm must receive overall wei+htin+s that total 133F. *) There must be at least one other major criteria that has .3F wei+htin+. )) 4ntermediateBterm cost receives a wei+htin+ o% 1&F. $) !on+Bterm cost receives an overall wei+htin+ o% 83F. Answer ) $i%% & "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills &0) The Analytical /ierarchy 'rocess is used to decide amon+ three projects that we>ll call A, *, and ). The total score %or project A is .503, %or project * is .01., and %or project ) is .3&1. ?hich o% the %ollowin+ statements is bestE A) 'roject A is twice as +ood as project ). *) The analysis must be incorrect because the total scores should sum to 1.33. )) The analysis must be incorrect because there are two total scores that e1ceed 3.03. $) The analysis must be incorrect because project )>s total score is odd. Answer A $i%% 1 "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills &5) The pro%ile model plots a +raph on a A) perceptionBreality pair o% a1es. *) ris(Breturn pair o% a1es. )) e%%iciencyBe%%ectiveness pair o% a1es. $) "a1onBNorman pair o% a1es. Answer * $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective

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&7) The e%%icient %rontier in project mana+ement is the set o% port%olio options that o%%er A) a minimum return %or a minimum ris(. *) a minimum return %or a ma1imum ris(. )) a ma1imum return %or a minimum ris(. $) a ma1imum return %or a ma1imum ris(. Answer ) $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective &8) ?hich statement about the use o% the pro%ile model is bestE A) The pro%ile model re=uires care%ul calculation o% the percenta+e ris( %or each possible project. *) The scale used %or the pro%ile model can be any two numerical variables that a company deems important. )) The e%%icient %rontier in the pro%ile model is where return is 133F <or +reater) and ris( is 3F. $) For a +iven level o% ris(, a positive move on the return a1es would indicate a superior project. Answer $ $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective &9) *etween projects A and *, project A will be considered a superior %inancial underta(in+ i% it has A) a shorter paybac( period than project *. *) a lower avera+e rate o% return than project *. )) a lower net present value than project *. $) a lon+er paybac( period than project *. Answer A $i%% 1 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 33) Net present value is bein+ used to brea( the tie amon+ %our otherwise e=ual projects. 4% the interest rate is .F, which o% these anticipated %ourByear %lows would yield the +reatest net present valueE A) @13,333 in year 1I @11,333 in year &I @1&,333 in year 3I and @13,333 in year . *) @13,333 in year 1I @1&,333 in year &I @11,333 in year 3I and @13,333 in year . )) @13,333 in year 1I @13,333 in year &I @13,333 in year 3I and @13,333 in year . $) @11,333 in year 1I @11,333 in year &I @1&,333 in year 3I and @1&,333 in year . Answer * $i%% 3 "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 1.
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31) A company %acin+ an interest rate o% 8F must choose amon+ projects o%%erin+ the %ollowin+ %ourByear cash %lows. 4% the company is employin+ the net present value criterion, which project should they chooseE A) @&0,333 in year 1I @10,333 in year &I @13,333 in year 3I and @0,333 in year . *) @0,333 in year 1I @0,333 in year &I @&3,333 in year 3I and @33,333 in year . )) @10,333 in year 1I @10,333 in year &I @10,333 in year 3I and @10,333 in year . $) @0,333 in year 1I @0,333 in year &I @&0,333 in year 3I and @&0,333 in year . Answer ) $i%% 3 "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 3&) ?hich o% these statements about internal rate o% return analysis is bestE A) 4% the 4,, is less than the company>s re=uired rate o% return, the project is worth %undin+. *) 'rojects havin+ lower 4,, are +enerally superior to those havin+ hi+her 4,,. )) 4,, and N'A calculations always ma(e the same investment recommendations. $) 4% net out%lows %ollow a period o% net in%lows, 4,, may +ive con%lictin+ results. Answer $ $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 33) ?hich o% these statements about valuation models is $%& correctE A) N'A employs a wei+hted avera+e cost o% capital discount rate that re%lects potential reinvestment. *) 4,, and N'A calculations typically ma(e the same investment recommendations only when the projects are independent o% each other. )) 4% cash %lows are not normal, 4,, may arrive at multiple solutions. $) 4,, is a more robust determinant o% project viability than N'A. Answer $ $i%% 3 "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills

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3.) A project mana+er is usin+ the internal rate o% return method to ma(e the %inal decision on which project to underta(e. ?hich o% these %our projects have the hi+hest internal rate o% returnE A) @&0,333 initial outlay with @13,333 cash in%lows durin+ the %ollowin+ %ive years *) @1&,033 initial outlay with @13,333 cash in%lows durin+ the %ollowin+ %ive years )) @&0,333 initial outlay with @0,333 cash in%lows durin+ the %ollowin+ %ive years $) @1&,033 initial outlay with @0,333 cash in%lows durin+ the %ollowin+ %ive years Answer * $i%% 3 "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 30) A project mana+er is usin+ the internal rate o% return method to ma(e the %inal decision on which project to underta(e. ?hich o% these %our projects have the hi+hest internal rate o% returnE A) @133,333 initial outlay with @13,333 cash in%lows durin+ the %irst two years, @&3,333 durin+ the third and %ourth years, and @33,333 durin+ the %i%th year *) @133,333 initial outlay with a @0,333 cash in%low durin+ the %irst year, @10,333 cash in%low durin+ the second year, and @&0,333 cash in%lows durin+ years three throu+h %ive )) @70,333 initial outlay with a @0,333 cash in%low durin+ the %irst year, increasin+ by @0,333 per year throu+h the %i%th year $) @03,333 initial outlay with @0,333 cash in%lows durin+ the %irst two years, @10,333 durin+ the third and %ourth years, and @&3,333 durin+ the %i%th year Answer $ $i%% 3 "ection 3.1 'roject "election "(ill Analytical AA)"* Ta+ Analytic "(ills 35) Dptions models are used to assist in project selection decisions A) when 4,, calculations are %avorable but N'A calculations are un%avorable. *) when a company may not recover the money it invests in a project. )) when N'A calculations are %avorable but 4,, calculations are un%avorable. $) when a company is +uaranteed to recover the money it invests in a project. Answer * $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective

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37) ,e+ardless o% which selection method a %irm uses, it should always A) be able to predict how much revenue will be returned to the %irm each year. *) (now which project will ultimately succeed and which ones will %ail. )) be objective in their selection method. $) use a wei+hted scorin+ techni=ue. Answer ) $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ ,e%lective 38) The systematic process o% selectin+, supportin+, and mana+in+ a %irm>s collection o% projects is called A) heavywei+ht project mana+ement. *) matri1 project or+ani:ation. )) pro%ile mana+ement. $) project port%olio mana+ement. Answer $ $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 39) The concept o% project port%olio mana+ement holds that %irms should A) re+ard all projects as uni%ied assets. *) mana+e projects as independent entities. )) %ocus on shortBterm strate+ic +oals. $) %ocus on lon+Bterm constraints. Answer A $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .3) A project with the chance %or a bi+ payout may be %unded i% an important criterion is A) cost. *) opportunity. )) top mana+ement pressure. $) ris(. Answer * $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective

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.1) A project is e1ceptionally ris(y mi+ht still be underta(en by a %irm i% they have several other projects underway that are considered more o% a sure thin+. This approach to project selection is best described by the criterion called A) strate+ic J%itJ. *) ris(. )) desire %or port%olio balance. $) top mana+ement pressure. Answer ) $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .&) #valuatin+ projects in terms o% their strate+ic %it with e1istin+ project lines or their ability to au+ment the current product %amily is (nown as A) balance. *) an open criterion )) wei+hted criterion. $) complementarity. Answer $ $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .3) ,eali+nment describes A) the chan+e in a project port%olio with an addition o% a new project. *) the shi%tin+ o% project resources %rom one to another. )) the chan+e in strate+y %or a %irm. $) the annual recastin+ o% all project mana+ers. Answer A $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective ..) A proactive project port%olio A) is as simple as movin+ %rom one project opportunity to another project opportunity. *) is an inte+rated %amily o% projects with a common strate+ic +oal. )) is a collection o% projects under the umbrella o% sin+le project mana+er carryin+ the title o% port%olio mana+er. $) is developed with respect to shortBterm operational concerns. Answer * $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 18
)opyri+ht 2 &313 'earson #ducation, 4nc.

.0) ?hich o% these is $%& a %actor in success%ul project port%olio mana+ementE A) %le1ible structure and %reedom o% communication *) low cost environmental settin+ )) emphasis on =uality $) time paced transition Answer ) $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .5) 6ultiple project environments thrive on A) multiBlayered bureaucracy. *) ri+id development processes. )) narrow communication channels. $) improvisation by project teams. Answer $ $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .7) A %irm is best served i% its project port%olio A) has a number o% lowBcost e1perimental prototypes. *) devotes si+ni%icant resources to hit product Jhome runsJ. )) aims to ta(e the mar(etplace by storm re+ardless o% %uture trends. $) represents narrowly concentrated e%%orts. Answer A $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective .8) "uccess%ul %irms use project port%olio plannin+ routinely to A) ma(e =uantum jumps %rom one product to another. *) develop products with lon+ lead times and plan ahead. )) move as =uic(ly as possible into new territory. $) move at +lacial pace always within the same product line. Answer * $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective

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.9) 4% an or+ani:ation that currently is mana+in+ a vast and wellBbalanced port%olio o% projects decides on a new strate+ic direction, it will initially %ace the problem o% A) scarce resources. *) a conservative technical community. )) outBo%Bsync projects and port%olios. $) unpromisin+ projects. Answer ) $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 03) A principle cause o% port%olio underper%ormance is A) conservative technical communities. *) +overnment intervention. )) outBo%Bsync projects. $) scarce resources. Answer $ $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 01) 'roject port%olio mana+ement is typically $%& used to balance A) human and technical resources. *) ris( and return. )) e%%iciently run projects and nonper%ormers. $) various %amilies o% projects. Answer A $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective

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)opyri+ht 2 &313 'earson #ducation, 4nc.

3.. #ssay 1) $escribe or de%ine any %our important attributes %or screenin+ models used to evaluate projects. Answer "ouder identi%ies %ive important issues that mana+ers should consider when evaluatin+ screenin+ models realism, capability, %le1ibility, ease o% use, and cost, and the te1t o%%ers up comparability. Ta(in+ these in reverse order, comparability re%ers to the ability o% the criterion to be applied to multiple projects without bias. )ost can be de%ined as the e1pense in either time or money <or both) that is re=uired to use the model. #ase o% use calls %or the model to be simple enou+h to be used by people in all areas o% the or+ani:ation, both in speci%ic project roles and in those related to %unctional positions. Fle1ibility is the =uality o% ease o% modi%ication i% trial applications re=uire chan+es. )apability is the ability o% the model to respond to chan+es in the conditions under which projects are carried out. Finally, realism is the ability o% the model to re%lect or+ani:ational objectives, includin+ a %irm>s strate+ic +oals and mission. $i%% & "ection 3.1 'roject "election "(ill $e%inition AA)"* Ta+ ,e%lective &) 'rovide an e1ample o% a numeric and nonBnumeric project selection model and indicate what advanta+e each mi+ht hold over the other. Answer 'roject selection models come in two +eneral classes numeric and nonBnumeric. Numeric models see( to use numbers %or the decision process involved in selectin+ projects. These values can either be derived objectively or subjectively. NonBnumeric models do not employ numbers at decision inputs, relyin+ instead on other data. #ach techni=ue has its own merits and may be employed success%ully, and a choice between the two should be tempered by the ada+e G4GD. 4% a numeric model uses objective, e1ternal values that are JcorrectJ, then a decisionBma(er can have a hi+h de+ree o% con%idence that the values under study will lead to a reasonable decision. A nonBnumeric model mi+ht appeal to decision ma(ers that have less o% a =uantitative bent or those that operate in a less =uanti%iable decision arena. $i%% & "ection 3.1 'roject "election "(ill )onceptual AA)"* Ta+ Analytic "(ills 3) $escribe any %our types o% ris( that projects may hold. Answer ,is( %actors re%lect elements o% unpredictability %or the %irm. Technical ris(s occur due to the development o% new or untested technolo+ies. Financial ris(s arise %rom the %inancial e1posure caused by investin+ in the project. "a%ety ris( may arise as the wellBbein+ o% users or developers o% the project is compromised. Any ris(s to the %irm>s +oodwill or reputation due to the =uality o% the completed project are termed =uality ris(s. Finally, the potential %or lawsuits or le+al obli+ation is le+al e1posure. $i%% & "ection 3.1 'roject "election "(ill Factual AA)"* Ta+ ,e%lective &1
)opyri+ht 2 &313 'earson #ducation, 4nc.

.) /ow does a chec(list project screenin+ model wor(E Answer The simplest method o% project screenin+ and selection is developin+ a chec(list o% criteria that pertain to a choice o% projects and then applyin+ them to the projects. #ach potential project is scored a+ainst the list o% criteria and is rated as per%ormin+ hi+h, medium, or low with the project scorin+ hi+hest overall bein+ selected as the project to underta(e. $i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ ,e%lective 0) Kour university is considerin+ two projects to increase enrollment o%%erin+ traditional classes %rom midni+ht to 5 a.m. or o%%erin+ house call classes where the pro%essor would visit your home to provide instruction. -se a simple scorin+ model with at least three criteria to evaluate these two potential projects and indicate which project should be chosen. Answer Answers may vary widely. A simpli%ied scorin+ model ran(s criteria accordin+ to their relative importance. #ach project is evaluated %or per%ormance on each criterion and an overall score %or each project is computed by summin+ the products o% each score times its wei+ht. A simple scorin+ model mi+ht be as %ollows with /ouse )alls narrowly ed+in+ out 6idni+ht )lasses. 'roject 6idni+ht )lasses )riteria L ?ei+ht "core Time & & )ost 1 1 6ar(et 'otential 3& Time & 3 )ost 1 3 6ar(et 'otential 31 ?ei+hted "core . 1 5 5 3 3 Total "core

11

/ouse )alls

1&

$i%% & "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Analytical AA)"* Ta+ Analytic "(ills 5) ?hat are the advanta+es and limitations o% simple scorin+ modelsE Answer The simple scorin+ model has some use%ul advanta+es as a project selection device. First, it is easy to tie to critical strate+ic +oals %or the company and second, it is easy to comprehend and use. The major limitation o% simple scorin+ models is that the scalin+ is not very accurate and is o%ten treated as i% ratios and di%%erence in scorin+ levels have real meanin+. Another drawbac( o% these models is that they depend on the relevance o% the selected criteria and the accuracy o% wei+ht +iven them. $i%% 1 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill Factual AA)"* Ta+ ,e%lective

&&
)opyri+ht 2 &313 'earson #ducation, 4nc.

7) /ow does the Analytical /ierarchy 'rocess di%%er %rom a simple scorin+ modelE 4s it worth the e1tra e%%ortE Answer The Analytical /ierarchy 'rocess <A/') is a %ourBstep process that consists o% structurin+ the hierarchy o% criteria, allocatin+ wei+hts to criteria, assi+nin+ numerical values to evaluation dimensions, and evaluatin+ project proposals. 'rimary di%%erences between the two approaches are that A/' ta(es a more ri+orous view o% the assi+nment o% criteria wei+hts and values to the evaluation dimensions. $i%%erences amon+ evaluation scale items are not necessarily e=ual and can be adjusted as mana+ers and decisionBma(ers see %it. The resultin+ product sums have meanin+, unli(e the values computed in a simple scorin+ model. A/' methodolo+y can dramatically improve the project selection process over use o% the simple scorin+ model. A/' is not without limitations and does re=uire more e%%ort to con%i+ure and use. The authors caution a+ainst usin+ a project screenin+ tool that has a poor cost/bene%it ratio, so determination o% the value derived %rom use o% A/' versus a simple scorin+ model can best be made on a caseBbyBcase basis. $i%% 3 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill )onceptual AA)"* Ta+ ,e%lective 8) $escribe the use o% a pro%ile model and s(etch an e1ample, clearly labelin+ every component and the best alternative in your e1ample. Answer 'ro%ile models allow mana+ers to plot ris(/return options %or various alternatives and then select the project that ma1imi:es return while stayin+ within a certain ran+e o% minimum acceptable ris(. The pro%ile model ma(es use o% a concept (nown as the e%%icient %rontierMthe set o% project port%olio options that o%%ers either a ma1imum return %or every +iven level o% ris( or the minimum ris( %or every level o% return. A pro%ile model appears below.

$i%% 3 "ection 3.& Approaches to 'roject "creenin+ and "election "(ill $e%inition AA)"* Ta+ ,e%lective &3
)opyri+ht 2 &313 'earson #ducation, 4nc.

9) ?hat is the time value o% money principle and how does it apply to project selectionE Answer The time value o% money principal su++ests that money earned today is worth more than money e1pected in the %uture. Future money is e1pected to be worth less %or two reasons 1) the impact o% in%lation, and &) the inability to invest the money. The time value o% money principle may be applied to project selection as one criterion to ascertain which project will +enerate the +reatest return on a company>s investment. 'rojects that have a relatively certain return o% +reater sums o% money would be pre%erred over projects that stand a chance o% returnin+ less money in today>s dollars. $i%% 1 "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills 13) /ow can a paybac( period approach be used to evaluate potential projectsE Answer The project paybac( period approach estimates the amount o% time that will be necessary to recoup the investment in a projectI that is, how lon+ will it ta(e the project to pay bac( its initial bud+et and be+in to +enerate positive cash %low %or the company. The discounted cash %low method is used to estimate cash outlays and in%lows resultin+ %rom investment in a project, and these positive and ne+ative %lows are compared usin+ the ratio

"horter paybac(s are pre%erable to lon+er paybac(s. $i%% & "ection 3.3 Financial 6odels "(ill Analytical AA)"* Ta+ Analytic "(ills 11) ?hat is an internal rate o% return and what advanta+es and disadvanta+es are accrued by usin+ it to evaluate projectsE Answer 4nternal rate o% return <4,,) is a method o% evaluatin+ the e1pected outlays and income associated with a new project investment opportunity. 4,, is the discount rate that e=uates the present values o% a project>s revenue and e1pense streams. 4% 4,, is +reater than or e=ual to the company>s re=uired rate o% return, the project is worth %undin+. The advanta+e o% usin+ 4,, analysis is its ability to compare alternative projects %rom the perspective o% e1pected return on investment. 4,, su%%ers %rom di%%iculty in con%lictin+ solutions i% cash %lows are not normal, e.+., i% net out%lows %ollow a period o% net cash in%lows. 4,, is not the rate o% return %or a project. $i%% & "ection 3.3 Financial 6odels "(ill )onceptual AA)"* Ta+ Analytic "(ills

&.
)opyri+ht 2 &313 'earson #ducation, 4nc.

1&) ?hat are options models and when should they be used to evaluate projectsE 'rovide an e1ample. Answer Dptions models open %inancial analysis to consider a +reater ran+e o% alternatives to immediate investment. Dr+ani:ations can %actor the bene%it o% postponin+ decisions <and projects) until %inancial models indicate projects are worth pursuin+. #1amples may vary, but suppose %irm A can wait until more mar(et research is per%ormed or until a supplier solves =uality and lo+istics issues. The cash %lows may be superior to those that would come %rom immediate investment i% company A had to su%%er throu+h those issues with their supplier. *ecause company A can wait a year, the project scores better on the N'A calculations, clearin+ the company>s predetermined %inancial hurdle and will just have to wait to be+in rather than bein+ counted as too +reat a %inancial ris(. $i%% & "ection 3.3 Financial 6odels "(ill $e%inition AA)"* Ta+ ,e%lective 13) ?hat two simple rules should be %ollowed when choosin+ a project selection approachE Answer First and %oremost, objectivity and consistency in selection method is paramount. Achievin+ both objectivity and consistency allows a %irm to avoid the pit%all o% twea(in+ results and startin+ projects that are personal %avorites but don>t merit pursuit. "econd, a wide variety o% selection methods may be appropriate %or speci%ic companies and project circumstances. As with most thin+s, overBreliance on one end o% a scale, whether it is %inancial, =uantitative, or any other, is not the best approach. A broad al+orithm that embraces both %inancial and nonB%inancial considerations is o%ten best. $i%% & "ection 3.3 Financial 6odels "(ill Factual AA)"* Ta+ ,e%lective 1.) ?hat is project port%olio mana+ement and what are its objectives and initiativesE Answer 'roject port%olio mana+ement is the systematic process o% selectin+, supportin+ and mana+in+ a %irm>s collection o% projects. 'rojects are mana+ed concurrently under a sin+le umbrella and may be either related or independent o% each other. 'ort%olio mana+ement entails decisionBma(in+, prioriti:ation, review, reali+nment, and reprioriti:ation o% a %irm>s project. $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill $e%inition AA)"* Ta+ ,e%lective

&0
)opyri+ht 2 &313 'earson #ducation, 4nc.

10) ?hat are three (eys to success %or project port%olio mana+ementE ?hich is most importantE Answer The author indicates that the (eys to success%ul project port%olio mana+ement are %le1ible structure and %reedom o% communicationI lowBcost environmental scannin+I and timeB paced transition. Answers may vary on the importance ran(in+. "ome may ar+ue that un%ettered e1perimentation is most important in achievin+ new project or product brea(throu+hs. Dthers may tout continuous environmental scannin+ as a vehicle %or =uic(ly adaptin+ a %irm>s project port%olio and strate+y to the chan+in+ mar(et conditions. Finally, others may su++est that in both project port%olio mana+ement and comedy, timin+ is everythin+. /avin+ a stable o% projects that are timeBphased to launch when others are nearin+ the end o% their use%ul cycle and still others are bearin+ ma1imum %ruit will assure a %irm o% continued success. $i%% 1 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill Factual AA)"* Ta+ ,e%lective 15) )hoose any e1ample %rom recent news media and e1plain why their project %ailed. Answer #1amples will vary and may include product launches, public pro+rams, buildin+ projects, or any number o% other projects. $i%% & "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective 17) ,an( the problems in implementin+ port%olio mana+ement %rom lar+est to smallest and justi%y your ran(in+s. Answer ,ecent research seems to su++est that the %ollowin+ are amon+ the most common problems in e%%ective port%olio mana+ement conservative technical committees that are beholden to %avorite projects, methods or technolo+ies that no lon+er %it the mar(et or company>s strate+ic thrustI outBo%Bsync projects and port%olios that may contain worthwhile projects but these projects won>t ta(e the company in the direction it is currently tar+etedI unpromisin+ projects that won>t improve a company>s operations or revenuesI and scarce resources such as human labor, cash, and raw materials. D% these, the te1t su++ests that scarce resources may be the most pernicious problem, althou+h answers will vary in students> ran(in+s. $i%% 3 "ection 3.. 'roject 'ort%olio 6ana+ement "(ill )onceptual AA)"* Ta+ ,e%lective

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)opyri+ht 2 &313 'earson #ducation, 4nc.