Scoring methods

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Scoring methods are used in investment appraisal. They have two primary purposes. Firstly they are useful where benefits are difficult to quantify objectively; secondly, they can be used to aggregate the results of multiple appraisal methods to provide an overall comparison.

The simplest form of scoring model is where a list of criteria is assessed in a binary way, i.e. they are either met or not.

 

Table of how two projects meet listed criteria

 

Click here for a worked example from Brook Bicycles' Columbus project.On this basis the scoring shown above seems to indicate that Project B should be preferred over Project A.

However, a more accurate picture is gained by scoring each factor according to how well it meets the criteria and weighting each factor according to its importance to the organisation.

 

Table of weighted numerical scores

 

This suggests that Project A is the preferred option.

 

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27 June 2014Link to worked example from Brook Bicycles' Columbus project added.

Scoring methods

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