Selecting the type of model to aid the evaluation/selection process depends on the philosophy and wishes of management. Liberatore and Titus |35| conducted a survey of 40 high-level staff persons from 29 Fortune 500 firms. Eighty percent of their respondents report the use of one or more financial models for R & D project decision making. Although their sample is small and nonrandom, their findings are quite consistent with the present authors' experience. None of the respondent firms used mathematical programming techniques for project selection or resource allocation.
We strongly favor weighted scoring models for three fundamental reasons. First, they allow the multiple objectives of all organizations to be reflected in the important decision about which projects will be supported and which will be rejected. Second, scoring models are easily adapted to changes in managerial philosophy or changes in the environment. Third, they do not suffer from the bias toward the short run that is inherent in profitability models that discount future cash flows. This is not a prejudice against discounting and most certainly does not argue against the inclusion of profits/profitability as an important factor in selection, but rather it is an argument against the exclusion of nonfinancial /actors that may require a longer-run view of the costs and benefits of a project. For a powerful statement of this point, see |25j.
It is also interesting to note that Liberatore and Titus found that firms with a significant amount of contract research funded from outside the organization used scoring models for project screening much more frequently than firms with negligible levels of outside funding. It was also found that firms with significant levels of outside funding were much less likely to use a payback period [35, p. 969],
The structure of a weighted scoring model is quite straightforward. Its virtues are many. Nonetheless, the actual use of scoring models is not as easy as it might seem. Decision makers are forced to make difficult choices and they are not always comfortable doing so. They are forced to reduce often vague feelings to quite specific words or numbers. The Delphi method mentioned above and described in Appendix B is helpful, and is a satisfying process for decision makers. Even so, mul-tiattribute, multiperson decision making is not simple. (For an interesting discussion of this process, see [31) as well as reference |31) in Appendix B.)
Was this article helpful?
What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.