Lesson 3: Numeric and Non-Numeric Selection Methods

In this lesson, we went through the Numeric and Non-numeric methods for selecting a project. These are all tools that are able to assess the potential or the attractiveness of a project.

Non Numeric Methods

1. Operating necessity: There is a catastrophe looming and you have no other choice but to carry out the project or you can have very severe problems like running out of money or have to fire people for example

2. Sacred Cow: You are entrusted to carry out a project by a very senior person, buy you know deep down that it's destined for failure. This will last as long as the senior person determines it.

3. Competitive necessity: We have to take on a project out of necessity so we are able to survive in the market. This can happen if the market has changed and I have to embark on a project to gain some traction in regards to my competitors for example.

Numeric Methods - These methods can determine the financial feasibility of a project and propose new alternative investments in some cases

1. Cost-Benefit Analysis: Do a comparison of all the costs vs the potential benefits and analyze if the return is enough to initiate the project.

2. Financial Costs: What are the financing options (loans, grants, funds)how much is the cost of them and we are able to pay it back.

3. Payback Method: How long will it take to repay the initial capital investment. This method doesn't take into account the amount of profit.

4. Discounted cash flow return: Used in conjunction with the previous method. It is calculated as a percentage and the higher it is the more attractive is that project option.

5. Discounted cash flow: This a method that takes into account the effect of time in the costs and benefits. For that, we have the Net present value & the interest rate of return