Project Management: Achieving Competitive Advantage, 4e (Pinto)

Chapter 3 Project Selection and Portfolio Management

1) 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.
Answer: A

2) Souder's project screening criterion of realism addresses the question:

A) How many workers will the project need?
B) Will the project work as intended?
C) Who are the stakeholders?
D) How often should the project team meet?
Answer: B

3) 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.
Answer: B

4) 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.
Answer: C

5) 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.
Answer: B

6) An MBA redesign committee plans to spend a decade traveling the world to benchmark graduate
programs at other universities. Regardless of the screening model being used, it will suffer from poor
performance in the area of:
A) flexibility.
B) Capability.
C) Comparability.
D) Cost.
Answer: D
7) 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.
Answer: D

8) 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.
Answer: D

9) 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.
Answer: A
10) 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.
Answer: B
11) 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.
Answer: B
12) 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.
Answer: C
13) 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.
Answer: C
14) 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.
Answer: C

15) 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.
Answer: A

16) 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.
Answer: B

17) 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.
Answer: C

18) 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?

Importance
Project Criteria Weight Score

1 1 3
Greenlight 2 2 2
3 3 1

1 1 2
Runway 2 2 1
3 3 3

1 1 1
X 2 2 2
3 3 2
 1 1 2
Ilevomit 2 2 2
3 3 2
A) Project Greenlight
B) Project Runway
C) Project X
D) Project Ilevomit
Answer: B

19) 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?

Importance
Project Criteria Weight Score

1 1 2
White 2 2 2
3 3 3

1 1 3
Pinkman 2 2 3
3 3 2

1 1 3
Fring 2 2 2
3 3 3

1 1 3
Salamanca 2 2 1
3 3 3
A) Project White
B) Project Pinkman
C) Project Fring
D) Project Salamanca
Answer: C

20) 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.
Answer: D
21) 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.
Answer: A

22) 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.
Answer: D

23) 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.
Answer: B

24) The Analytic 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%.
Answer: C

25) 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.
Answer: A
26) The profile model plots a graph on a(n):
A) Perception-reality pair of axes.
B) Risk-return pair of axes.
C) Efficiency-effectiveness pair of axes.
D) Saxon-Norman pair of axes.
Answer: B
27) 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.
Answer: C
28) 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.
Answer: D

29) 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.
Answer: A

30) 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 has 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
Answer: D

31) A project manager is using the payback method to make the final decision on which project to
undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the
following four years. What is the non-discounted payback of a project that has cash flows as shown in
the table?

Year Cash Flow

0 -$250,000
1 $50,000
2 $60,000
3 $70,000
4 $80,000
A) 3.875 years
B) 3.625 years
C) 3.750 years
D) 3.500 years
Answer: A
32) A project manager is using the payback method to make the final decision on which project to
undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the
following five years. What is the discounted payback of a project that has cash flows as shown in the
table?

Year Cash Flow

0 -$100,000
1 $20,000
2 $50,000
3 $50,000
4 $25,000
5 $500,000
A) 3.4 years
B) 2.6 years
C) 5.0 years
D) 4.2 years
Answer: C

33) A project manager is using the net present value method to make the final decision on which
project to undertake. The company has a 15% required rate of return and expects a 5% rate of inflation
for the following four years. What is the NPV of a project that has cash flows as shown in the table?

Year Cash Flow

0 -$350,000
1 $50,000
2 $80,000
3 $100,000
4 $150,000
A) $4.955
B) $42,586
C) -$23,667
D) -$122,569
Answer: D

34) A project manager is using the payback method to make the final decision on which project to
undertake. The company has a 10% required rate of return and expects a 4% rate of inflation for the
following five years. What is the non-discounted payback of a project that has cash flows as shown in
the table?
Year Cash Flow
0 -$500,000
1 $50,000
2 $75,000
3 $150,000
4 $150,000
5 $750,000
A) 3.7 years
B) 4.1 years
C) 5.0 years
D) 4.8 years
Answer: B
35) A project manager is using the payback method to make the final decision on which project to
undertake. The company has a 15% required rate of return and expects a 5% rate of inflation for the
following five years. What is the discounted payback of a project that has cash flows as shown in the
table?

Year Cash Flow

0 -$500,000
1 $50,000
2 $75,000
3 $150,000
4 $150,000
5 $750,000
A) 3.9 years
B) 4.3 years
C) 4.6 years
D) 4.1 years
Answer: B

36) 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.
Answer: B

37) 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.
Answer: C

38) 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.
Answer: D

39) 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.
Answer: A
40) 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.
Answer: B

41) A project that 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.
Answer: C

42) 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.
Answer: D

43) 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.
Answer: A

44) 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.
Answer: B

45) 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.
Answer: C
46) A principal cause of portfolio underperformance is:
A) Conservative technical communities.
B) Government intervention.
C) Out-of-sync projects.
D) Scarce resources.
Answer: D

47) 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.
Answer: A

48) 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
Answer: C

49) Multiple project environments thrive on:

A) Multi-layered bureaucracy.
B) Rigid development processes.
C) Narrow communication channels.
D) Improvisation by project teams.
Answer: D

50) 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.
Answer: A

51) 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.
Answer: B