Which Project selection method is best?

SumitK

Friends,
if we are given options to choose projects among 2 or 3 and data is given in combination of various selection methods then which one to use or apply? which is considered best?
--IRR
--Payback period
--Cost/Benefit
--NPV
etc
Individual method is clear and straightforward.

Harwinder

You'll be asked to select the best project based on the given criteria, not the best method. Asking for the best method would be like asking you to choose the best color among red, yellow, green and white

SumitK

Sorry, i meant which criteria is better. i saw few days back that in an exam there was different criteria mentioned for project and and different for project b

Like, Project A has IRR of X and Project B has NPV of Y value, Project c is C/B ratio of x.
Choose the project

Harwinder

I think there are some questions like that in the Formula Challenge Exam in BrainBOK.

Harwinder

Usually, the approach is like this:

• NPV is calculated using IRR. So, IRR is built into NPV. Select the project with the highest NPV and disregard the IRR value, when both NPV and IRR are given.

• Projects with negative NPV are not good (should not be selected generally).

• Projects with higher C/B > 1 should not be selected. But projects with B/C > 1 are good.

• If you are given NPV for one project and B/C or C/B for another project, you can't really compare them head-to-head. In this case, if the NPV figure is positive on the first, you'll just select that project.

Most sample questions are built around these scenarios.

Hope it helps.