Deck 3: Project Selection and Portfolio Management

Question 1

Every decision model contains both objective and subjective factors.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

A project selection model that is broad enough to be applied to multiple projects has the virtue of __________.

Question 5

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

Question 6

A simple scoring model assigns __________ to the criteria used to evaluate projects.

Question 7

A balanced project portfolio may be interpreted to mean that a single portfolio contains both high and low risk, low growth and high growth, and risky and safe projects.

Question 8

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

Question 9

An options model could be used when financial criteria would change significantly over time.

Question 10

If strategy and portfolio are not in sync, the firm is poised on the cusp of success.

Question 11

Successful project management firms rely on home runs and narrowly concentrated efforts since specialization creates name recognition and market share.

Question 12

Because projects managed under a project portfolio management scheme may be independent of each other, it is not necessary to consider resource use when deciding to pursue any single project.

Question 13

Personnel costs comprise one of the highest sources of project expense.

Question 14

The simplest method of project screening and selection is developing a(n) __________ that contains criteria that pertain to a choice of projects.

Question 15

Project selection model come in two general classes: __________ and __________.

Question 16

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 17

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

Question 18

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 19

The __________ method of project screening generates overall project scores that can be compared meaningfully against each other.

Question 20

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

Question 21

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 22

An MBA redesign committee spends the better part of a decade traveling the Caribbean to benchmark graduate programs at other universities. Whatever screening model is being used suffers from poor performance on:

A) realism.
B) capability
C) ease of use
D) cost

Question 23

A principle cause of project portfolio underperformance is lack of __________.

Question 24

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.

Question 25

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 26

Financial models are all predicated on the __________ principal.

Question 27

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 28

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 29

An organization that has some flexibility in postponing a project and might be able to make a better decision with information that would be available at a later date might make use of a(n) __________ for project screening.

Question 30

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 31

__________ is the systematic process of selecting, supporting, and managing a firm's collection of projects.

Question 32

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 33

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 34

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 35

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 36

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 37

A firm that offsets risky ventures with more secure projects or new development ventures with existing product line cash cows is desirous of __________.

Question 38

The __________ screening method may arrive at multiple solutions, which is one reason it is used less widely than the net present value technique.

Question 39

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 40

In project management, the __________ is the set of project portfolio options that offers either a maximum return for every given level of risk or the minimum risk for every level of return.

Question 41

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 42

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 43

The profile model plots a graph on a:

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 44

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 45

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 46

The Analytical 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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

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?

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

Question 58

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 59

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 60

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 61

Which of these is NOT a factor in successful project portfolio management?

A) flexible structure and freedom of communication
B) low cost environmental setting
C) emphasis on quality
D) time paced transition

Question 62

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.

Question 63

A principle cause of portfolio underperformance is:

A) conservative technical communities.
B) government intervention.
C) out-of-sync projects.
D) scarce resources.

Question 64

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 65

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 66

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 have 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 67

Successful firms use project portfolio planning routinely to:

A) make quantum jumps from one product to another.
B) develop products with long lead times and plan ahead.
C) move as quickly as possible into new territory.
D) move at glacial pace always within the same product line.

Question 68

Multiple project environments thrive on:

A) multi-layered bureaucracy.
B) rigid development processes.
C) narrow communication channels.
D) improvisation by project teams.

Question 69

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 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

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

Question 73

A project 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 74

A firm is best served if its project portfolio:

A) has a number of low-cost experimental prototypes.
B) devotes significant resources to hit product "home runs".
C) aims to take the marketplace by storm regardless of future trends.
D) represents narrowly concentrated efforts.

Question 75

Project portfolio management is typically NOT used to balance:

A) human and technical resources.
B) risk and return.
C) efficiently run projects and nonperformers.
D) various families of projects.

Question 76

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 77

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 have 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 78

Options models are used to assist in project selection decisions:

A) when IRR calculations are favorable but NPV calculations are unfavorable.
B) when a company may not recover the money it invests in a project.
C) when NPV calculations are favorable but IRR calculations are unfavorable.
D) when a company is guaranteed to recover the money it invests in a project.

Question 79

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 80

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