MANGT 510 Prospective Students
Sample Syllabus
Sample Lesson
Introduction
2.1 Strategic Management
2.1.1 Formulating, Implementing, and Evaluating
2.1.2 Cross-Functional Decisions
2.1.3 Achieving Corporate Objectives
2.2 Strategic Management Process Flow Chart
2.2.1 Formulating Strategies
Conducting an External Audit
Performing an Internal Audit
Establishing Long-Term Objectives
Generating, Evaluating, and Selecting Strategies
2.2.2 Implementing Strategies
Managerial and Financial
Technological and Functional
Final Words
Measuring and Evaluating Performance
Strategic Management Road Map
2.4 Stakeholder Management
2.4.1 Identifying Project Stakeholders
Clients
Competitors and Suppliers
Intervenor Groups
Top Management and Accounting
Functional Managers and Project Team Members
2.4.2 Managing Stakeholders
Assess the Environment
Managing Stakeholders--2. Identify the Goals of the Principal Actors
Assess Your Own Capabilities
Develop Solutions
Test and Refine the Solution
Stakeholder Management Cycle
2.5 Project Screening and Selection Approaches
2.5.2 Simple Scoring Model
2.5.3 Profile Models
2.5.4 Financial Models
Net Present Value
Internal Rate of Return
Picking the Selection Approach That Is Right for You

2.5.3 Method Three: Profile Models

Profile models are another method for visually representing and comparing project alternatives. Specifically, profile models allow the organization to plot risk/return options for various project alternatives, and then select the project that maximizes return while staying within minimum acceptable risk.

Certainly, it should be noted that "risk" is a subjective assessment; that is, it may be difficult to establish an overall agreement on the level of risk associated with various projects. Nevertheless, the risk/return model offers another way for evaluating and screening projects in relation to each other. Consider the example shown in Figure 2.5 below. The four project alternatives we have been using are plotted on a graph with perceived risk on the y-axis and potential return on the x-axis. Because of the cost of capital to our firm, we would specify some minimum desired rate of return, most likely based on our internal rate of return requirements. Likewise, all projects would be assigned some risk factor and plotted relative to the maximum risk our firm is willing to take on. In following this logic, Figure 2.5 shows the graphic representation of each of the four project alternatives on the profile model. Note that these project risk values have been created here simply for illustrative purposes.

We can see that Project Alpha and Project Beta have similar expected rates of return. However, Project Alpha represents a far better selection choice, all else being equal. Why? Because the company can achieve the same rate of return with Project Alpha as it can with Project Beta for appreciably less risk. Likewise, Project Gamma offers a marginally greater return for some additional risk. Finally, Project Delta offers the most potential return, but at the highest level of risk.

The beauty of the profile model is that it offers another alternative for comparing project alternatives, this time in terms of the risk/return tradeoff. It is sometimes difficult to evaluate and compare projects on the basis of scoring models or other qualitative approaches. The profile model, however, gives project managers a chance to map out the potential returns that are available, while taking into consideration the concomitant risk for each choice. Thus, profile models give us another method for eliminating some project alternatives because they offer either too much risk or too little return relative to other choices.

Figure 2.5 Profit Model
Evans, D. A., and Souder, W. (1998). Methods of selecting and evaluating projects. In J. K. Pinto (Ed.), Project Management Handbook. San Francisco, CA: Jossey-Bass. Copyright ©1998. This material is used by permission of John Wiley & Sons, Inc.