Project Classification

Project classification
is one of the most important techniques of capital budgeting. It is of utmost importance for the present day business entities as proper project classification is essential for their financial well-being.

Basis of Project Classification

The projects that are undertaken by the business entities are categorized as per the following considerations:
Amount of Risk involved
Quantity of Work to be put in

Importance of Size in Project Classification
Size is an important part of project classification. One of the most crucial tools in this case is the Size Matrix. The Size Matrix has separate categories that reflect the size of the particular project. For example, Class 1 denotes a smaller project. On the other hand, a big project could be represented by Class 5.

The size of a particular business project could be gauged by studying the following factors:
Hours needed to complete a project
External Stuff Budget
Internal Stuff Budget

The following table represents the various project classes according to their sizes and the various requirements of individual project classes:

Class of Project Internal and External Staff Budget Work Effort in terms of Hours
1 Less than $ 8,000 80 to 159
2 Between $ 8,000 and $ 24, 999 160 to 499
3 Between $ 25,000 and $ 249,999 500 to 4,999
4 Between 250,000 and $499,999 5,000 to 9,999
5 More than $ 500,000 More than 10,000

Importance of Risk Factors in Project Classification
The risk factors are an important part of a project since there cannot be a project where no risk is involved. The risk factors need to be carefully evaluated while classifying a particular project.

As per the Risk Matrix following are the main risks that may be associated with any business:
Political status of a particular project
Size of the team of the project
The various complications associated with a project
Number of workgroups that are involved with a project
Impact of political scenario
Technology involved in the project

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Last Updated on : 27th June 2013

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