Hello Mr. Fichtner,
First I would take this opportunity to thank you for the PM PrepCast. It's indeed a great help.
I am preparing for the PMP Certification this year end. In the preparation process I came across a question as under - I did not fully agree to the explanation provided in the source and as such would ask your opinion on the same.
You are a project manager for a large consulting firm. Your superior has just asked for your input on a decision about which project your company should pursue. Project A has an internal rate of return (IRR) of 12 percent. Project B has a predicted benefit cost ratio (BCR) of 1.3. Project C has an opportunity cost of U.S. $75,000. Project D has a payback period of six months. If you had to choose based on this data,which project would you select?
A. Project A
B. Project B
C. Project C
D. Project D
I found it in one practice questions in a book by Rita Mulcahy.
Explanation This is a question about project selection and could easily be included in other chapters. In order to interpret the information, you need to know what each item is. The benefit cost ratio for choice B is unfavorable. There is not enough information provided to support recommending or not recommending choices C or D. This leaves only choice A, with a 12 percent return, as providing a clear benefit.
My point is - I do not disagree that A is correct but I cannot agree that B is incorrect. I have highlighted the portion which says "BCR is unfavorable". To my understanding any BCR above 1 should be favorable. Based on that I had chosen B. To me A was incorrect as I was thinking that BCR should be a more easier & reliable in such a scenario than IRR.
Well... I normally try not to comment on the questions and explanations of other PMP Exam training companies. In this case, however, I have to agree with you that a BCR of 1.3 isn't all too bad. The real question here is, why do they think that it's "unfavorable". Maybe there is some other reasoning that we don't see.
So I have two recommendations for you:
First and foremost I'd say that you should simply shrug your shoulders and move on. It's probably not worth your time to get more into details here and you can invest your time more wisely in other studies.
Second, if you really want to know, then the best thing to do is to contact RMC directly and ask them for an explanation.
Until Next Time,
Cornelius Fichtner, PMP, CSM
President, OSP International LLC
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This interview with Simona Fallavollita (LinkedIn Profile) was recorded at the magnificient Project Management Institute (PMI)® Global Conference 2017 in Chicago, Illinois. We discuss the how, what, why and when of the changes that are coming to the PMP exam.