Project Selection - there are two handouts. One are three financial models and the other which you match to situation to the type of project is described below - starting with the sacred cow - which is another way of saying "Politically driven"

 The lecture consists of an overview of how to decide which project to take choose. Companies very often have to select on the basis  of how much money they have available to support the project. It can take years to complete large project and financing might be one consideration. How long (time month/years) to get a return on the investment and how much return (rate %) are two considerations. However there are many cases where making a profit is not the only criteria. There are political reasons, marketplace conditions, and operating reasons for taking on a project. Here is a brief overview of each type. Sometimes there are more than one reason a project is chosen. This would be a weighted decision and is a topic in the lecture on decision making and using a matrix to calculate the best choice.

Types. Sacred Cow. Have to do it because it has become an "institution", because someone with political or organizational power wants it done. If it is a bad idea then it is the person with power, e.g.  the boss,  who will cancel it-and not because the project is unprofitable or a bad idea for other reasons. The issue of privatizing Ontario Hydro might become a Sacred Cow. How strongly do the people of Ontario want hydro power to belong to the people rather than to a privately owned company? Will Hydro One become a Sacred Cow. We agreed in class that when Mel Lastman want a project to be done through at City Hall it is a Sacred Cow. There is one more example on the sheet. 

Operating Necessity. Answers the question, "Do we need to do this to keep operating? If we don't do it will we have to shut own?" If we decide we want to continue operating , a plant , a unit, a piece of machinery, even if doesn't generate an immediate profit, it falls into this category.

# 1 is a tough choice here. I would incline not to put it into this category.

Competitive Necessity.  Think market share for this one. Think of universities creating many different types of MBA programs to get enroll more students. # 6 would definitely fit into this category. # 3 might, although I would be inclined to put this into the next category.

Product line Extension. Fills a gap, strengthens a weak link, maintains a leading position in market share. I used Gillette's new Mach 3 razor as an example. 

Comparative benefit. Used when there are numerous options available. United Way uses this method to evaluate where to spend donations received. We described the Q sort method in class which is a comparative benefit model. Choose between two items at the high level. Select one.

for that choice choose from one of two criteria. continue this process until you get down to the final decision point. If this is confusing, I would suggest that seeing this demonstrated in class would have made it easier. # 8 could fit into this category. But # 8 could also fit into sacred cow. 

It is not easy to make good decisions. We need a tool- a decision making matrix to guide us -next week we will use a form to assist us. A similar form will be provided for a question in the the mid term exam - make sure you practice.