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60 Cards in this Set
- Front
- Back
Which of the following is true for project selection models? |
The qualities of a project can be represented by numbers. |
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The two basic types of project selection models are __________. |
numeric and nonnumeric |
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If a system is being updated due to operating necessity, the project was selected because __________. |
the system is worth saving at the estimated cost of the project |
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The payback period model fails to consider __________. |
any cashflows beyond those required to recover the initial project investment |
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If the NPV for a project is > 0, it indicates that the project will __________. |
cover its hurdle rate |
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Identify the numeric model that usually does NOT account for all cashflows. |
payback period |
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Using this nonnumeric model, a project to develop and distribute new projects would be judged on the degree to which it fits the firm’s existing product line, fills a gap, strengthens a weak link, or extends an existing line. |
product line extension |
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Using the __________, the relative importance of individual selection criteria are given weights. |
weighted factor scoring model |
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A project selection model which attempts to determine the cost, timing, and performance specifications of a new technology to understand whether it qualifies as useful and economic is referred to as __________. |
window of opportunity analysis |
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When considering a project, the set of documents submitted for evaluation is called the __________. |
project proposal |
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Which of the following is the least important point in an RFP for a non-technical project? |
implementation plan |
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The process of modeling a problem seeks to carve away the __________ from the bones of a problem. |
unwanted reality |
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A numeric model for project selection that chooses investments that may not be profitable or beneficial in the near future, but will lead to options for the future with a great promise is referred to as __________. |
real options |
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According to Wheelwright et al, __________ projects have objectives or deliverables that are only incrementally different in both product and process from existing offerings. |
derivative |
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All models, no matter how complex, are only partial representations of the reality they hope to reflect. |
True |
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For a project selected using nonnumeric models, operating necessity projects have priority over competitive necessity projects. |
True |
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In order to compute the internal rate of return for a project, the value for NPV must be greater than inflation in order to have a return on investment. |
False |
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Scoring models are used to overcome the inability of profitability models to take into account multiple decision criteria. |
True |
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Projects should always be selected primarily based on cost considerations. |
False |
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Uncertainty plagues all aspects of the work on projects and is present in all stages of project life cycles. |
True |
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All of the following are common problems in organizations trying to manage multiple projects except ________. |
It is impossible for organizations to manage a common resource pool effectively |
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Important criteria for selecting a model would include all of the following except |
Rigidity |
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The two basic types of project selection models identified in the text are ________. |
Numeric and nonnumeric |
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A project selected using the sacred cow model will be maintained until successfully completed or until |
The boss recognizes the project as a failure and terminates it |
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If a system is being updated due to operating necessity, the project was selected because |
The system is worth saving at the estimated cost of the project |
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For a project selected using nonnumeric models, identify the true statement regarding relative priorities for project selection. |
Operating necessity projects have priority over competitive necessity projects |
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The drawback of the ________ model is that it fails to consider cash flows obtained once the initial investment has been recovered. |
Payback period |
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The average rate of return can use any of the following values for average annual profit except ________. |
Net cash flow from operations |
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If the NPV for a project is < 0, it indicates that the project will ________. |
Fail to cover its hurdle rate |
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In order to compute the internal rate of return for project, the value for NPV must be ________. |
Equal to zero in order to solve for the interest rate value |
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Identify the example of a non-cash expense that would be added to accounting income to determine cash flow from operations. |
Depreciation |
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Identify the numeric model that does not account for the time value of money. |
Payback period |
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Scoring models are used to overcome this disadvantage of profitability models |
Inability to account for multiple decision criteria |
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. All of the following are advantages that favor use of weighted scoring models except ________. |
Decision makers are compelled to stick with the decision once it has been made |
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. The distinction between subjective and objective refers to ________. |
The difference between an internal reference and an external standard |
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The mastery of skills required to manage projects competently is referred to in the literature as ________. |
project management maturity |
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________ is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved. |
Project selection |
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The process of carving away the unwanted reality of a problem is called ________.
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modeling the problem |
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A measurement that is taken by reference to an external standard is said to be an ________ measurement. |
objective |
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The ________ is applied to discriminate between a quantitative measure and a qualitative measure. |
: rule of addition |
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A data source is said to be ________ if repetitions of a measurement produce results that vary from one another by less than a pre-specified amount. |
reliable |
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________ is the extent to which a piece of information actually means what we believe it to mean. |
Validity |
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Measurements used in project selection models must be ________, reliable, and valid. |
numeric |
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In a project portfolio process, the main purpose of the ________ is to establish and articulate a strategic direction for those projects spanning the internal or external boundaries of the organization |
project council |
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In a project portfolio, ________ projects have objectives or deliverables that are only incrementally different in both product and process from existing offerings. |
derivative |
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In a project portfolio, a disruptive technology that is known to the industry would serve as an example of a ________ project. |
breakthrough |
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The ________ solicitation document requests information about price and methodology. |
Request for Proposal (RFP) |
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The sophistication and experience of an organization in managing multiple projects is called ________. |
project management maturity, or maturity |
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Project Typhoon has a net present value of $10,000 and a profitability index of 1.01. Project Cyclone has a net present value of $10,000 and a profitability index of 1.10. If only one project could be done, the organization should select project ________. |
Cyclone |
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A probability distribution is an example of a ________ model. |
stochastic |
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If the NPV for Project Hurricane is ($10,000), the cashflow from this project was insufficient to cover the required ________. |
hurdle rate |
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If the initial project investment is $100,000 and the average net cash flow is $40,000 per year into the foreseeable future, the payback period is ________. |
2.5 years |
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If the average rate of return equals 15 percent and the average investment in the project was $200,000, compute the average annual profit is ________. |
$30,000 |
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A ________ scenario is one with no possibility of an alternate outcome. |
deterministic |
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Financial forecasts are reported as ________ financial statements. |
pro forma |
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Explain why it is necessary for the project manager to understand the reasons leading to the selection of a project. |
If the project manager does not understand what a given project is expected to contribute to the parent organization, the project manager lacks critical information needed to manage the project successfully. It is important for the project manager to make sound business decisions regarding the work that will be done as part of the authorized project scope. The criteria used to select a project should provide the project manager with important insights about what the organization is trying to accomplish. The project manager should use these insights to align the project's work with the organization’s objectives. |
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Project Boulder has a payback period of 2.4 years, NPV of $10,000, and a profitability index of 1.10. Project Flintstone has a payback period of 3.0 years, NPV of $10,000 and a profitability index of 1.05. If only one project can be executed, which project should be selected? Explain your reasoning. |
Based on the available data, project Boulder appears to be more favorable. In addition to recovering the initial investment more quickly, the same net present value is generated using fewer resources. |
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Explain the difference between risk and uncertainty. |
Uncertainty means that it is possible to have alternate outcomes. Risk is uncertainty that affects the project for better or for worse. If the risk is favorable, it presents the project team with an opportunity to capture. If the risk is unfavorable, it represents a threat that may require a response from the project team. |
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Project Nebulous has an estimated average rate of return at 12 percent. Nevertheless, the required hurdle rate for corporate projects is 15 percent. What actions should the project manager consider the feasibility of in order to increase the profitability of this project? |
Since the project is profitable in terms of accounting income, the project manager should look at the timing of net cash flows generated by the project. It may be possible for the project manager to accelerate the revenue stream. Doing so would improve other profitability measures such as the payback period and the internal rate of return. The project manager should also evaluate options for delaying cash outflows. For example, a housing development might be completed in stages to reduce the upfront investment. |
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Suppose that you have been assigned as the project manager to execute a project that was selected using the sacred cow method of project selection. The project sponsor is an executive who has been with the company for three years. Based on past employment history, the average tenure of a senior executive at your company is 5 years. After reviewing the project’s expectations and requirements, the project team has determined that the payback period will be 3.5 years. What are the implications for you and the project team? |
Many projects are terminated before they can be successfully completed. One potential source of uncertainty in a project that was selected using the sacred cow method would be the continuity of executive leadership. Therefore, it would be important for the project manager to understand the project-related factors that would support the overall corporate strategy for business success. Otherwise, should the sponsoring executive depart the company prior to completion of the project, the project will lack a sponsor. Given the selection method used, the scope of the project is likely to be unstable. |