Assignment #3

Student Details:

1. Gokulakrishanan Sridharan (110092082)

Q1. Phyllis has called you into her office to help her make sense of the contradictions in project
evaluations. How would you explain the reasons for this divergence of opinion from one
technique to the next?

Solution:
The difference in opinions between the two evaluation methods can be explained by the fact that
they use different criteria and perspectives.

The first evaluation team uses a scoring model that is based on personal judgments and
qualitative assessments. They consider various factors like strategic alignment, technical
success, financial risk, potential profitability, and strategic leverage for each project. This
subjective scoring model can introduce biases and variations in the evaluation process due to
different interpretations and individual perspectives. According to their assessments, Project
Gemini received a higher score.

On the other hand, the second evaluation team uses a financial screening approach called net
present value (NPV) analysis. This method focuses on measurable financial metrics and cash
flows, considering the time value of money. By discounting future cash flows to their present
value, the NPV analysis evaluates the profitability of each project by comparing the present
value of cash inflows to the initial investment. In this case, Project Janus had a higher NPV
compared to Project Gemini.

The difference in viewpoints occurs because the scoring model considers a wider range of
criteria, including strategic fit and leverage, while the financial screening method focuses solely
on financial aspects. The scoring model captures qualitative factors that are important for Nova
Western's overall strategic direction, while the NPV analysis provides a financial perspective on
profitability. schedule.

Q2. What are the strengths and weaknesses of each screening method?

Solution:

Scoring Model:

Strengths:

- Considers many different factors: The scoring model looks at various aspects like how well a
project aligns with the company's goals, its technical success, financial risks, potential profits,
and strategic advantages. This helps in getting a complete picture of the projects.

- Relies on team expertise: The model takes into account the knowledge and experience of the
evaluation team, which adds valuable insights based on their expertise in the field.

- Considers qualitative aspects: The model also considers subjective factors that may not have
precise numbers but are important to evaluate.

Weaknesses:

- Subjectivity and biases: The scoring model rely on personal judgments, which can introduce
biases and variations in the evaluation process.

- Lack of financial metrics: The model doesn't directly consider financial metrics, which are
crucial for assessing the profitability and financial viability of a project.

- Inconsistent weighting and scoring: The model assigns weights and scores to different criteria,
which can be subjective and vary among evaluators.

Net Present Value (NPV) Analysis:

Strengths:

- Focuses on finances: The NPV analysis provides a clear financial assessment by considering
the time value of money and the profitability of future cash flows.

- Considers all cash flows: It looks at all the expected money coming in and going out during
the project's lifetime, giving a comprehensive view of its financial feasibility.

- Objective and measurable: The NPV analysis is based on measurable financial metrics, which
allows for a more objective comparison between projects.

Weaknesses:

- Excludes non-financial factors: The NPV analysis only looks at financial aspects and doesn't
consider non-financial factors like strategic fit or technical success, which are important for
long-term success.

- Relies on assumptions: The accuracy of NPV calculations depends on the accuracy of

projected cash flows and the discount rate used. Incorrect or changing assumptions can lead to
misleading results.

- Ignores project duration: The NPV analysis doesn't consider how long it takes to complete a
project. It assumes that projects with higher NPV are always better, without considering the
time it takes to generate returns.

Q3. Which project would you recommend that Nova Western should undertake? Defend and
explain your answer.

Solution:

Based on the information we have, I would recommend that Nova Western chooses Project
Gemini. Here are the reasons:
Higher weighted score: The scoring model gave Project Gemini a higher score of 28, which
means it performed better overall in terms of strategic fit, technical success, financial risk,
potential profit, and strategic leverage. This suggests that Project Gemini fits better with Nova
Western's goals and available resources.

Strategic fit and leverage: Project Gemini received higher scores in the strategic fit and strategic
leverage categories. This indicates that it has the potential to use and improve the company's
resources and technical capabilities. In other words, Project Gemini aligns well with Nova
Western's strengths and can make the best use of its existing assets.

Broader evaluation criteria: The scoring model considers a wider range of factors beyond just
financial aspects. It considers qualitative factors that are important for long-term success and the
overall direction of Nova Western.

While the NPV analysis is useful for assessing financial profitability, it should not be the only
factor considered. By considering the comprehensive evaluation provided by the scoring model
and the alignment of Project Gemini with Nova Western's goals, the company can make a more
informed decision. However, it's important to analyze all the available information thoroughly
and conduct further assessments or due diligence before making the final decision.