Selecting Projects – Risk and Finance
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01:20 – Project Selection Principles
04:15 – Projects to Support the strategy
05:25 – Projects Related to Improvements or Results
06:35 – Evaluation related to the Risk Level
07:50 – Evaluation and Selection Based on Financial Parameters
09:40 – Decision Making Tools to Optimize Selection
10:55 – Conclusion
Project selection is important when we are building a portfolio for a company or division. Many projects may be interesting to work on but financial means are limited and it is important to select the best projects, or better the best combination of projects.
When we consider projects, we can have projects that are typically supporting the company growth (supporting the strategy) and projects related to improvements (in some cases, they can also be part of the strategy, e.g. when there is an important quality issue).
When evaluating the projects, there are two main parts to consider: the risk level of the project and its chances to be successful and financial parameters.
Risk evaluation is important because every company has its ideas about risk and how to deal with risks. There may be a risk threshold from which the company will not consider a project and there will also be an expectation for higher gains when the risk is higher.
On the other hand financial parameters like PBT, IRR, NPV, and others are important to estimate the profits that can be made when the project is completed.
Companies may use different techniques to select projects like formal decision making based an expected monetary value, decision trees, and the decision matrix or multi-criterion analysis.
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