Deck 3: Project Selection and Portfolio Management

Question 1

A commercial factor in project selection and screening might be:

A)A need to develop employees.
B)The likelihood that users of the project are injured.
C)The long-term market dominance.
D)The impact on the company's image.

Answer 1

C

Question 2

An effective project selection model must reflect organizational objectives,including a firm's strategic goals and mission.

Answer 2

True

Question 3

Every decision model contains both objective and subjective factors.

Answer 3

True

Question 4

Which statement regarding project selection is BEST?

A)Organizational reality can be perfectly captured by most decision-making models.
B)Before selecting any project,the team should identify all the relevant issues that play a role in project selection.
C)Decision models must contain either objective or subjective factors.
D)Every decision model has both objective and subjective factors.

Question 5

Souder's model selection criterion that encourages ease of adaptation to changes in tax laws,building codes,among others,is called:

A)Ease of use.
B)Cost.
C)Capability.
D)Flexibility.

Question 6

Which statement regarding project selection and screening criteria is BEST?

A)The most complete model in the world is still only a partial reflection of organization reality.
B)It is possible,given enough time and effort,to identify all relevant issues that play a role in project selection.
C)Decision models are either objective or subjective.
D)For many projects,more than 80% of the decision criteria are vital.

Question 7

If a model can be applied successfully by people in all areas and levels of an organization,it is said to possess the trait of:

A)Capability.
B)Ease of use.
C)Flexibility.
D)Realism.

Question 8

Quality risk refers to the chance that:

A)The project relies on developing new or untested technologies.
B)The firm's reputation may suffer when the product becomes available.
C)The well-being of the users or developers may decline dramatically.
D)The firm may face a lawsuit.

Question 9

Numeric project selection models,by their very nature,employ objective values.

Question 10

One facet of risk in project screening is:

A)The change in manufacturing operations resulting from the project.
B)The initial cash outlay.
C)The potential for lawsuits or legal obligation.
D)The strategic fit of the project with the company.

Question 11

A writer estimates it will take three months to generate spiffy documents to accompany a seminal work in operations management.He grossly underestimates the time required and misses his deadline by two months.This estimate was:

A)Objective and accurate.
B)Subjective and accurate.
C)Objective and inaccurate.
D)Subjective and inaccurate.

Question 12

An expert's opinion on an issue may be subjective but very accurate.

Question 13

An MBA redesign committee plans to spend a decade traveling the world to benchmark graduate programs at other universities.Regardless of the screening model being used,it will suffer from poor performance in the area of:

A)Flexibility.
B)Capability.
C)Comparability.
D)Cost.

Question 14

An internal operating issue in project screening and selection is:

A)Expected return on investment.
B)Change in physical environment.
C)Patent protection.
D)The chance that the firm's goodwill will suffer due to the quality of the finished project.

Question 15

One project factor that directly impacts a firm's internal operations is the:

A)Expected return on investment.
B)Financial risk.
C)Need to develop employees.
D)Impact on company's image.

Question 16

Souder's project screening criterion of realism addresses the question:

A)How many workers will the project need?
B)Will the project work as intended?
C)Who are the stakeholders?
D)How often should the project team meet?

Question 17

A wedding planner allows $10,000 for flowers and three weeks to receive all RSVPs back from the list of 700 guests.Both estimates are correct within a fraction of a percent.We could describe this factoid as:

A)Numeric and subjective.
B)Numeric and objective.
C)Non-numeric and subjective.
D)Non-numeric and objective.

Question 18

A selection model that is broad enough to be applied to multiple projects has the benefit of:

A)Ease of use.
B)Comparability.
C)Capability.
D)Flexibility.

Question 19

Souder's project screening criterion that indicates an effective model must reflect organization objectives,including a firm's strategic goals and mission is called:

A)Realism.
B)Capability.
C)Comparability.
D)Ease of use.

Question 20

A project screening criterion that allows the company to compare long-term versus short-term projects,projects with different technologies,and projects with different commercial objectives is:

A)Flexibility.
B)Ease of use.
C)Capability.
D)Realistic.

Question 21

The profile model plots a graph on a(n):

A)Perception-reality pair of axes.
B)Risk-return pair of axes.
C)Efficiency-effectiveness pair of axes.
D)Saxon-Norman pair of axes.

Question 22

The Analytical Hierarchy Process elegantly addresses scaling issues in criteria and negative utility in alternative scores.

Question 23

The first step in the Analytical Hierarchy Process:

A)Requires supporting requirements to be combined into Level II challenges.
B)Is analyzing the process you intend to improve before undertaking any improvement project.
C)Requires Saatyfication of the team members.
D)Consists of constructing a hierarchy of criteria and subcriteria.

Question 24

Which statement about the use of the profile model is BEST?

A)The profile model requires careful calculation of the percentage risk for each possible project.
B)The scale used for the profile model can be any two numerical variables that a company deems important.
C)The efficient frontier in the profile model is where return is 100% (or greater)and risk is 0%.
D)For a given level of risk,a positive move on the return axes would indicate a superior project.

Question 25

Describe any four types of risk that projects may hold.

Question 26

The Analytical Hierarchy Process is used to decide among three projects that we'll call A,B,and C.The total score for project A is .650,for project B is .514,and for project C is .321.Which of the following statements is BEST?

A)Project A is twice as good as project C.
B)The analysis must be incorrect because the total scores should sum to 1.00.
C)The analysis must be incorrect because there are two total scores that exceed 0.50.
D)The analysis must be incorrect because project C's total score is odd.

Question 27

The pairwise comparison approach:

A)Is a method to split the weights assigned to subcriteria.
B)Is a method to compare pairs of hierarchies prior to any further analysis.
C)Is a means of achieving all project objectives within the allocated time frame.
D)May be used instead of AHP if time is limited.

Question 28

The efficient frontier in a profile model is the set of options that offers a maximum return for a given level of risk or a minimum risk for every level of return.

Question 29

A simple scoring model for project evaluation requires:

A)Importance weights from 1 to 10 assigned to each criterion.
B)Score values assigned to each criterion in terms of its rating.
C)A division of weights by scores to arrive at a standardized score for each criterion.
D)A summation for each criterion to achieve an overall criterion score.

Question 30

The simple scoring model has this advantage over a checklist model for screening projects.

A)Scaling from 1 to 5 is extremely accurate.
B)Scaling models ensure a reasonable link between the selected and weighted criteria and the business objectives that motivated their selection.
C)Scaling models allow decision makers to treat one criterion as more important than another.
D)Scaling models have been proven to make correct decisions better than 95% of the time while checklists only achieve 80% accuracy.

Question 31

A simple scoring model is used to decide among three projects that we'll call A,B,and C.The total score for project A is 30,for project B is 20,and for project C is 10.Which of the following statements is BEST?

A)If project A is successfully completed,it will yield three times the benefits that project C would have provided.
B)If project C is chosen,the company would benefit only half as much as if they had chosen project B.
C)Project C is better than project B for this company at this point in time.
D)Project A is better than project B for this company at this point in time.

Question 32

Describe or define any four important attributes for screening models used to evaluate projects.

Question 33

A checklist screening model does NOT consider:

A)Whether one criterion is more important than another.
B)Governmental or stakeholder interference.
C)Product durability and future market potential of the product line.
D)The riskiness of the new venture.

Question 34

The Analytic Hierarchy Process is being employed in a project selection decision.One major criteria,cost,receives a weighting value of 40%,which is split into short term (50%),intermediate term (30%),and long term (20%).Which of these statements is BEST?

A)Short term,intermediate term,and long term must receive overall weightings that total 100%.
B)There must be at least one other major criteria that has 40% weighting.
C)Intermediate-term cost receives a weighting of 12%.
D)Long-term cost receives an overall weighting of 80%.

Question 35

Which statement about the Analytical Hierarchy Process is FALSE?

A)AHP scores are significant.
B)AHP can be used to capture choice options that do not yield positive outcomes.
C)AHP can improve the process of developing project proposals.
D)AHP groups subcriteria that share the weight of a common higher-level criterion.

Question 36

The simplest method of project screening and selection is developing a list of criteria that pertain to the choice of projects and then applying them to alternatives.

Question 37

The efficient frontier in project management is the set of portfolio options that offer:

A)A minimum return for a minimum risk.
B)A minimum return for a maximum risk.
C)A maximum return for a minimum risk.
D)A maximum return for a maximum risk.

Question 38

Provide an example of a numeric and non-numeric project selection model and indicate what advantage each might hold over the other.

Question 39

A project manager is using a simple scoring model to decide which of four projects is best,given the company's limited resources.The criteria,importance weights,and scores for each are shown in the table.Which project should be chosen? $$\begin{array} { | l | l | l | l | } \hline & & \text { Irportance } & \\\text { Project } & \text { Criterin } & \text { Weight } & \text { Score } \\\hline & & & \\\hline & 1 & 1 & 2 \\\hline\text { White } & 2 & 2 & 2 \\ \hline & 3 & 3 & 3 \\\hline & & & \\\hline & 1 & 1 & 3 \\\hline \text { Pinkman } & 2 & 2 & 3 \\\hline & 3 & 3 & 2 \\\hline & & & \\\hline & 1 & 1 & 3 \\\hline \text { Fring } & 2 & 2 & 2 \\\hline & 3 & 3 & 3 \\\hline & & & \\\hline & 1 & 1 & 3 \\\hline \text { Salamanca } & 2 & 2 & 1 \\\hline & 3 & 3 & 3 \\\hline\end{array}$$

A)Project White
B)Project Pinkman
C)Project Fring
D)Project Salamanca

Question 40

A project manager is using a simple scoring model to decide which of four projects is best,given the company's limited resources.The criteria,importance weights,and scores for each are shown in the table.Which project should be chosen? $$\begin{array} { | l | l | l | l | } \hline & & \text { Impartance } & \\ \text { Project } & \text { Criterin } &\text {Weight}& \text { Score } \\\hline & & & \\\hline & 1 & 1 & 3 \\\hline \text { Greenlight }&2 & 2 & 2 \\ \hline &3 & 3 & 1 \\\hline & & & \\\hline &1 & 1 & 2 \\\hline \text { Runway }& 2& 2 & 1 \\ \hline &3 & 3 & 3 \\\hline & & & \\\hline &1 & 1 & 1 \\\hline \mathbf{X}& 2 & 2 & 2 \\ \hline & 3 & 3 & 2 \\\hline & & & \\\hline & 1 & 1 & 2 \\\hline\text { Ilevomit } & 2 & 2 & 2 \\ \hline & 3 & 3 & 2 \\\hline\end{array}$$

A)Project Greenlight
B)Project Runway
C)Project X
D)Project Ilevomit

Question 41

Between projects A and B,project A will be considered a superior financial undertaking if it has:

A)A shorter payback period than project B.
B)A lower average rate of return than project B.
C)A lower net present value than project B.
D)A longer payback period than project B.

Question 42

How does the Analytical Hierarchy Process differ from a simple scoring model? Is it worth the extra effort?

Question 43

A simplified scoring model is used to determine that project Cow has a score of 38 and project GiGi has a score of 30.Project Cow is therefore 26.7% better than project GiGi.

Question 44

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following four years.What is the non-discounted payback of a project that has cash flows as shown in the table?

A)3.875 years
B)3.625 years
C)3.750 years
D)3.500 years

Question 45

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the non-discounted payback of a project that has cash flows as shown in the table?

A)3.7 years
B)4.1 years
C)5.0 years
D)4.8 years

Question 46

A project manager is using the internal rate of return method to make the final decision on which project to undertake.Which of these four projects has the highest internal rate of return?

A)$25,000 initial outlay with $10,000 cash inflows during the following five years
B)$12,500 initial outlay with $10,000 cash inflows during the following five years
C)$25,000 initial outlay with $5,000 cash inflows during the following five years
D)$12,500 initial outlay with $5,000 cash inflows during the following five years

Question 47

What are the advantages and limitations of simple scoring models?

Question 48

Which of these statements about internal rate of return analysis is BEST?

A)If the IRR is less than the company's required rate of return,the project is worth funding.
B)Projects having lower IRR are generally superior to those having higher IRR.
C)IRR and NPV calculations always make the same investment recommendations.
D)If net outflows follow a period of net inflows,IRR may give conflicting results.

Question 49

Which of these statements about valuation models is NOT correct?

A)NPV employs a weighted average cost of capital discount rate that reflects potential reinvestment.
B)IRR and NPV calculations typically make the same investment recommendations only when the projects are independent of each other.
C)If cash flows are not normal,IRR may arrive at multiple solutions.
D)IRR is a more robust determinant of project viability than NPV.

Question 50

A simplified scoring model addresses all the weakness of a checklist model for project screening.

Question 51

Describe the use of a profile model and sketch an example,clearly labeling every component and the best alternative in your example.

Question 52

Net present value is being used to break the tie among four otherwise equal projects.If the interest rate is 4%,which of these anticipated four-year flows would yield the greatest net present value?

A)$10,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $13,000 in year 4
B)$13,000 in year 1;$12,000 in year 2;$11,000 in year 3;and $10,000 in year 4
C)$10,000 in year 1;$10,000 in year 2;$13,000 in year 3;and $13,000 in year 4
D)$11,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $12,000 in year 4

Question 53

A project manager is using the net present value method to make the final decision on which project to undertake.The company has a 12% required rate of return and expects a 3% rate of inflation for the following four years.What is the NPV of a project that has cash flows as shown in the table?

A)-$9,762
B)-$56,859
C)-$69,387
D)-$98,780

Question 54

The checklist model of project screening has a mechanism to accommodate the differential importance of relevant criteria.

Question 55

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table?

A)3.4 years
B)2.6 years
C)5.0 years
D)4.2 years

Question 56

A project manager is using the internal rate of return method to make the final decision on which project to undertake.Which of these four projects has the highest internal rate of return?

A)$100,000 initial outlay with $10,000 cash inflows during the first two years,$20,000 during the third and fourth years,and $30,000 during the fifth year
B)$100,000 initial outlay with a $5,000 cash inflow during the first year,$15,000 cash inflow during the second year,and $25,000 cash inflows during years three through five
C)$75,000 initial outlay with a $5,000 cash inflow during the first year,increasing by $5,000 per year through the fifth year
D)$50,000 initial outlay with $5,000 cash inflows during the first two years,$15,000 during the third and fourth years,and $20,000 during the fifth year

Question 57

A project manager is using the net present value method to make the final decision on which project to undertake.The company has a 15% required rate of return and expects a 5% rate of inflation for the following four years.What is the NPV of a project that has cash flows as shown in the table?

A)$4.955
B)$42,586
C)-$23,667
D)-$122,569

Question 58

Your university is considering two projects to increase enrollment: offering traditional classes from midnight to 6 a.m.or offering house call classes where the professor would visit your home to provide instruction.Use a simple scoring model with at least three criteria to evaluate these two potential projects and indicate which project should be chosen.

Question 59

How does a checklist project screening model work?

Question 60

A company facing an interest rate of 8% must choose among projects offering the following four-year cash flows.If the company is employing the net present value criterion,which project should they choose?

A)$25,000 in year 1;$15,000 in year 2;$10,000 in year 3;and $5,000 in year 4
B)$5,000 in year 1;$5,000 in year 2;$20,000 in year 3;and $30,000 in year 4
C)$15,000 in year 1;$15,000 in year 2;$15,000 in year 3;and $15,000 in year 4
D)$5,000 in year 1;$5,000 in year 2;$25,000 in year 3;and $25,000 in year 4

Question 61

Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative.Project A and B have the cash flows as shown and Inatech uses a required rate of return of 10% and an inflation rate of 4%.Compute the payback in years and the net present value for both projects and offer advice as to the best course of action.
$$\begin{array} { | l | l | l |} \hline \text { Year } & \mathbf { A } & \mathbf { B } \\\hline 0 & - \$ 250,000 & -\$ 400,000 \\\hline 1 & \$ 75,000 & \$ 125,000 \\\hline 2 & \$ 155,000 & \$ 230,000 \\\hline 3 & \$ 200,000 & \$ 288,000 \\\hline 4 & \$ 175,000 & \$ 265,000 \\\hline 5 & \$ 160,000 & \$ 225,000 \\\hline\end{array}$$

Question 62

What is the time value of money principle and how does it apply to project selection?

Question 63

A project with the chance for a big payout may be funded if an important criterion is:

A)Cost.
B)Opportunity.
C)Top management pressure.
D)Risk.

Question 64

The systematic process of selecting,supporting,and managing a firm's collection of projects is called:

A)Heavyweight project management.
B)Matrix project organization.
C)Profile management.
D)Project portfolio management.

Question 65

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 15% required rate of return and expects a 5% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table?

A)3.9 years
B)4.3 years
C)4.6 years
D)4.1 years

Question 66

What is an internal rate of return and what advantages and disadvantages are accrued by using it to evaluate projects?

Question 67

Internal rate of return is preferable to net present value because IRR employs a weighted average cost of capital discount rate that reflects potential reinvestment.

Question 68

The most important thing to remember when using project selection models is to be consistent and objective.

Question 69

The present value of money is lower the further out in the future I expect to spend it.

Question 70

The concept of project portfolio management holds that firms should:

A)Regard all projects as unified assets.
B)Manage projects as independent entities.
C)Focus on short-term strategic goals.
D)Focus on long-term constraints.

Question 71

If an organization that currently is managing a vast and well-balanced portfolio of projects decides on a new strategic direction,it will initially face the problem of:

A)Scarce resources.
B)A conservative technical community.
C)Out-of-sync projects and portfolios.
D)Unpromising projects.

Question 72

The reciprocal of the payback period is used to calculate the average rate of return for a project.

Question 73

Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative.Project A and B have the cash flows as shown and Inatech uses a required rate of return of 8%.Compute the internal rate of return for both projects to determine which is worth of funding.

Question 74

Regardless of which selection method a firm uses,it should always:

A)Be able to predict how much revenue will be returned to the firm each year.
B)Know which project will ultimately succeed and which ones will fail.
C)Be objective in their selection method.
D)Use a weighted scoring technique.

Question 75

What two simple rules should be followed when choosing a project selection approach?

Question 76

Realignment describes:

A)The change in a project portfolio with an addition of a new project.
B)The shifting of project resources from one to another.
C)The change in strategy for a firm.
D)The annual recasting of all project managers.

Question 77

How can a payback period approach be used to evaluate potential projects?

Question 78

Evaluating projects in terms of their strategic fit with existing project lines or their ability to augment the current product family is known as:

A)Balance.
B)An open criterion.
C)Weighted criterion.
D)Complementarity.

Question 79

A project that is exceptionally risky might still be undertaken by a firm if they have several other projects underway that are considered more of a sure thing.This approach to project selection is BEST described by the criterion called:

A)Strategic "fit."
B)Risk.
C)Desire for portfolio balance.
D)Top management pressure.

Question 80

A proactive project portfolio:

A)Is as simple as moving from one project opportunity to another project opportunity.
B)Is an integrated family of projects with a common strategic goal.
C)Is a collection of projects under the umbrella of single project manager carrying the title of portfolio manager.
D)Is developed with respect to short-term operational concerns.