Comments On The Information Base For Selection

Our bias in favor of weighted scoring models is quite clear, but irrespective of which model is chosen for project selection, an annual or computerized data base must be created and maintained to furnish input data for the model. Directions for the ac tual construction of the data base go beyond the scope of this book, but some comments about the task are in order.

The use of either scoring models or profit/profitability models assume that the decision-making procedure takes place in a reasonably rational organizational environment. Such is not always the case. In some organizations, project selection seems to be the result of a political process, and sometimes involving questionable ethics, complete with winners and losers. In others, the organization is so rigid in its approach to decision making that it attempts to reduce all decisions to an algorithmic proceeding in which predetermined programs make choices so that humans have minimal involvement—and responsibility. In an interesting paper, Huber examines the impact that the organizational environment has on the design of decision support systems [29|.

The remainder of this section deals with three special problems affecting the data used in project selection models.

Comments on Accounting Data

Whether managers are familiar with accounting systems or not, they can find it useful to reflect on the methods and assumptions used in the preparation of accounting data. Among the most crucial are the following.

1. Accountants live in a linear world. With few exceptions, cost and revenue data are assumed to vary linearly with associated changes in inputs and outputs.

2. The accounting system often provides cost-revenue information that is derived from standard cost analyses and equally standardized assumptions regarding revenues. These standards may or may not be accurate representations of the cost-revenue structure of the physical system they purport to represent.

3. As noted in the previous section, the data furnished by the accounting system may or may not include overhead costs. In most cases, the decision maker is concerned solely with cost-revenue elements that will be changed as a result of the project under consideration. Incremental analysis is called for, and great care must be exercised when using pro forma data in decision problems. Remember that the assignment of overhead cost is always arbitrary. The accounting system is the richest source of information in the organization, and it should be used—but with great care and understanding.

Comment on Measurements

It is common for those who oppose a project, for whatever reason, to complain that information supporting the project is "subjective." This epithet appears to mean that the data are biased and therefore untrustworthy.

To use the scoring methods discussed, we need to represent though not necessarily collect expected project performance for each criterion in numeric form. If a performance characteristic cannot be measured directly as a number, it may be useful to characterize performance verbally and then, through a word/number equiva-

Project Management Made Easy

Project Management Made Easy

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.

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