CDT505 Chap.7 Project Selection and Portfolio Balance
Project Selection and Portfolio Balance
Use models as evidence for a governed choice
Weighted screening makes strategic priorities explicit, while payback, net present value and internal rate of return examine financial attractiveness from different angles. Each model has assumptions and omissions, so rankings need sensitivity testing. Portfolio management then considers combined risk, timing, strategy and shared resources.
A set of individually attractive projects can still be infeasible when they compete for the same scarce capability.
Test rankings against feasible combinations
Scores depend on definitions, weights and evidence, while discounted cash flow depends on signed forecasts and a rate. Vary disputed inputs to learn whether the result is robust.
Then move from isolated projects to the portfolio: check common risks, strategic concentration, timing and bottlenecks. Two leading candidates may not be deliverable together. Governance can sequence them, add capacity, change scope or select a lower-ranked feasible combination, but it should preserve the reason for that trade rather than describing later conflict as an execution surprise.
What this chapter covers
- 01
Strategic screening criteria
- 02
Weighted scoring and sensitivity
- 03
Payback and discounted payback
- 04
Net present value
- 05
Internal rate of return
- 06
Portfolio risk, value and resource balance
Worked example · free
Calculate a small net present value
- 2Place signed cash flows by period.
- 4Discount both future inflows.
- 2Interpret the result and its assumptions.
Key terms
- Weighted Scoring
- A selection method that multiplies criterion scores by approved weights and sums the results.
- Payback Period
- The time required for project cash inflows to recover the initial outlay.
- Net Present Value
- The total present value of all signed project cash flows under a chosen discount rate.
- Internal Rate of Return
- The discount rate at which a project's net present value equals zero.
- Project Portfolio
- A governed collection of projects managed together to support strategy and resource balance.
Project Selection and Portfolio Balance FAQ
Why can the best project differ from the best portfolio choice?
A project can lead a scoring or financial model yet be infeasible beside another candidate because both consume the same scarce capability or concentrate exposure. Compare the strongest isolated project with the strongest feasible combination, quantify the value sacrificed and name the bottleneck avoided. Governance can then preserve the reason for sequencing, resizing or rejecting work.
What can a weighted score prove?
It can show how projects compare under explicit criteria, weights and scoring evidence. It cannot prove that the chosen weights are correct or that the portfolio has enough resources. Sensitivity testing reveals whether the ranking depends on one contested assumption.
Why is NPV often preferred to simple payback?
NPV accounts for the timing of all forecast cash flows and expresses value today. Simple payback emphasises recovery speed and ignores later benefits. The methods answer different questions, so liquidity concerns can still make payback relevant.
Why can the top-ranked projects be a poor portfolio?
Projects interact through shared resources, timing, risk and strategic concentration. Two high-ranked projects may require the same specialist or expose the organisation to one common threat. Portfolio choice therefore tests combinations rather than approving a ranking mechanically.
Assessment move
Construct a weighted scoring model for three candidate projects. Define each criterion so every score uses the same direction and scale, set weights that total one and cite the evidence behind each score. Calculate the totals, then vary the most disputed weight enough to test whether the ranking changes. If it does, write the decision that governance must make rather than claiming that the arithmetic selected the project.
For financial practice, lay out signed cash flows by period. Calculate simple payback, discounted payback and net present value for the same project and explain why their conclusions can differ. Use a consistent discount rate and distinguish initial outlay from later operating flows.
Solve a small internal-rate problem by identifying the rate that drives NPV to zero, then state the limitations when projects differ in scale or have unusual cash-flow signs. Move from project ranking to portfolio choice by adding shared resources, common risks and timing. If the two highest-scoring projects require the same specialist, compare sequencing, added capacity, scope change and a lower-ranked feasible combination.
Place the surviving projects on the risk-value matrix and identify whether the portfolio is concentrated in one category. Finish each answer by naming what the chosen model leaves out, such as regulatory necessity, option value or interdependence. The aim is not to weaken the model but to position it correctly as evidence within a governed decision.
Recalculate a sample by hand so spreadsheet output never hides a sign or timing error.
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