Mutually-Exclusive Project Decisions

Mutually exclusive projects are projects that compete mutually (i.e. with others within the "set" of projects under consideration) in such a way that the acceptance of one will exclude the acceptance of all other alternatives. The total set of alternatives are mutually exclusive since only one could be chosen. In this, two major classifications are possible : 

(i)  Different levels of investment of the same process of expenditure, with each level attributable with different levels of benefit - e.g. providing heat-insulation on the main steam ducts in a central heating system. Here, the process of expenditure is the same - the provision of thermal lagging; but the level of 

benefit depends on the thickness of insulation provided - the larger the thickness, the smaller the heat loss and hence, the better the heating. The choice of any one thickness of the thermal insulation precludes the (simultaneous) adoption of any other thickness. 

(ii)  Different instruments/processes  of expenditure - each with the same stream of anticipated benefits. Two different machinery - differing in first cost and annual running cost -but yielding the same benefits. In one case, the first cost may be more and the annual running costs may be less; vice-versa for the other. 

Variations of this aspect of the classification can be of two further categories : 

• The capital investment may all be done at once; or may be possible in phases : e.g. A 200-bed hospital may be constructed all at one go; or a 100-bed hospital may be first constructed and, after, say, 10 years, expanded to a 200-bed hospital by adding the next 100-bed provisions. 
• This is almost like under (ii) but the stream of benefits may extend over unequal duration - say, for 10 years with one possible investment, and for 15 years with another alternative. These are called unequal life situations. 

Following two important viewpoints must be noted : 

Firstly, mutually exclusive project decisions are not independent of the accept-reject decisions. Each of the projects should be acceptable under the accept-reject criterion. Then, secondly, some technique should be used to determine which of the acceptable ones is the "best"; the acceptance of this "best" alternative automatically eliminates the other alternatives.