The VP of Manufacturing has brought manufacturing process improvement projects to the executive team. Project A is an improvement that will decrease annual manufacturing costs. Project B is an improvement that will decrease carbon emissions and bring them into compliance with new legislation expected to take effect five years from now. Project C is an improvement that will allow for much shorter manufacturing lead times, improving customer experience and increasing revenue. As a Project Manager in the manufacturing group, you are expected to prioritize the projects and make a recommendation on which should be done first.
Each member of the executive team has scored the three projects in five categories, as shown in the attached file. In addition, estimates of cost and income (both revenue increases and expense decreases) impacts for the next five years are provided.
1)
Calculate the NPV for each project using an 18% cost of capital.
2)
Calculate the binary score for each project assuming that a 2 or 3 equates to a “yes” and a 1 equates to “no.”
3)
Calculate the weighted score for each project assuming the weights are 20% strategic fit, 20% revenue growth, 30% regulatory need, 10% expense savings, and 20% internal capabilities.
4)
Answer the questions below about your results.
Questions:
1)
Based on the NPV scoring method, which project is the best?
2)
Based on the binary scoring method, which project is the best choice?
3)
Based on the weighted scoring method, which project is the best choice?
4)
(short answer) Based on your answers to 1-3, what do you conclude about the quantitative scoring methods?
5)
Based on the data provided, what factors might you consider that aren’t captured in the quantitative scoring methods?
6)
Given your above answers, which project would your recommend as the first priority and why?