Sacred cow

Operating necessity

- Unweighted

- Weighted

Figure 2: Classification of justification methodologies.

' Unweighted 0-1

Integer Goal m

— Technical importance

• Business objectives

— Competitive advantage

L- Research & development

Value Analysis This justification approach, described by Keen (1981), is used by some managers when assessing technical innovations. It consists of a two-stage process as depicted in Figure 3. In the pilot stage the project is treated as an investment in research and development (R & D) rather than as a capital investment (described in the strategic justification section). Here, value to the firm is considered first and then expected cost is determined to see if it is acceptable. In the second "build" stage, assuming the pilot stage was successful, the expected cost is considered first and then the expected benefits are evaluated for acceptability. These two stages are further described and illustrated below.

(1) Pilot Stage The decision to proceed with the pilot is based on an assessment of the expected, but not necessarily quantified, benefits. The pilot involves a small scale system, complete in itself but limited in its functional capability, to assess only a few of the expected benfits. The cost of the pilot is kept very low, for example, less than 520,000, to keep it in the R & D realm. When the pilot stage is finished the benefits are evaluated to verify their utility to the firm.

One example of this would be the development of a part classification and coding system with only a few digits (and thus limited ability) to determine the reduction in design, drafting, and process planning time. The reduction in lead time to delivery of new products, or decreased response time to customer inquiries might prove highly significant. Or perhaps the reduced hassle in design engineering, or smoother flows between design and process engineering, might be more valuable than expected.

Another example would be the use of a simple robot for limited production tasks such as spraying or material handling. The improvement in morale, or decrease in accidents, or reduction of pollution in the plant could be more important than had been surmized. Or perhaps less imporant.

And another example would be the installation of a simple manufacturing resource planning (MRP II) system, say on a microcomputer, that could coordinate production operations but had limited capabilities in terms of generating purchase orders and so on. Reduced scrap, better planning, smoother product flows, and so on might prove to be extremely valuable to the firm.

(2) Build Stage If the pilot stage was successful, that is, if the expected benefits were realized, then the full system development is considered next. At this stage the costs for the full system are evaluated very carefully and the expected value of the benefits obtained are compared with the cost to determine if they are justified. Clearly, various levels of costs can be

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.

Get My Free Ebook

Post a comment