Selecting the Best Alternative
Obviously, you can’t pursue every idea identified through
processes like brainstorming. After soliciting all reasonable
alternative solutions, the project team needs to pare the list
down to only those that are worthy of further development,
investigation, and definition. You can reduce the list by compar-
ing each alternative against predetermined criteria.
This is where the Requirements Document begins to add
significant value. The process for selecting the optimum solu-
tion begins by evaluating each alternative solution in terms of
how well it satisfies the most critical aspects of the project
requirements, such as budget constraints or strategic alignment.
You may also wish to use other requirements-based considera-
tions, such as the likelihood of technical success or the antici-
pated impact on existing products. This initial screening will
allow you to shorten the list of potential alternative solutions to
a manageable number—I would recommend two to five.
At this point, the selection process becomes much more rig-
orous. Each potential alternative should be evaluated using two
basic types of criteria: financial and non-financial.
Using Financial Criteria for Project Selection
Companies that use project selection and justification methods
often rely on financial calculations as a comparative tool and as
a basic hurdle for management approval. Basic financial evalu-
ation models—variously known as financial analysis, business
case, project financials, or cost/benefit analysis—often include
some combination of these four basic metrics: net present
value, internal rate of return, payback period, and cash hole.
Let’s take a look at each of these metrics in more detail.
- Net present value (NPV). Calculating a project’s NPV
answers the question: How much money will this project
make (or save)? It’s a calculation in dollars of the present
value of all future cash flowsexpected from a project. It’s
roughlyanalogous to the concept of profit.
Defining Your Project 59