project selection model

Hybrid Parametric Model Establishing an Analytical Project Selection and Decision Model For Your

Organization

EM730.1 Technology ManagementG. Ersen Celebi

2012

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Introduction:

In this study we propose to provide a guidance for the organizations about the challenges and important details they need to consider while they are (re-) constructing their portfolio management and/or Project Selection Process or Decision Model.

This study will not offer you a product, which is already available in the market, or a certain model; instead it will be helping you to find out what you may be missing in your current model and giving you some ideas that you can use and/or adopt to your current or future project selection model.

You may also find out all the details useful and decide to use entirely or adopt it as basement and add your decision constraints and/or variables to solve more complex decision problems.

Please contact to author before citing and/or using it either officially or unofficially.

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Project Selection Models

Models are useful because they address fundamental limitations of human problem solving.

Models work because they break a complex problem into pieces and enabling computers to do the calculations on behalf of humans.

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How a Decision Model Should Work?

“Humans have limited information processing skills, can be biased, and are often inconsistent when making choices.“ [3]

People are good at creative tasks like generating alternatives. They are also good at recognizing structure and at making the sort of "small", well-defined judgments that are required in order to provide inputs to models.

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How a Decision Model Should Work?

Because a successful decision model must capture every critical aspect of the decision, more complex decisions require more sophisticated models.

“There is not a simple solution to every complex problem” [H. L. Mencken]. This reality creates a major challenge to constructing a one ideal model which should solve all project selection problems.

Project decisions are often high-stakes, dynamic decisions with complex technical issues.

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Challenges

Strategic implications of a project selection decision makes the model more sophisticated to be able to capture them.

Also necessity of capturing dynamic decision support needs enforce the model to be more sophisticated.

A support model should reflect and react accordingly to different types of impacts of the decision on the organization as well.

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Benefits of a Model

Reduces errors, biases, and inconsistencies in human judgments.

It can help the organization to make value-maximizing choices.

Controls the role of politics.

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Benefits of a Model

Directs organizations to better choices and alternatives.

Improves the competition for resources by constructing proposal evaluation process.

Clarifies the information needed and how it should be used for decision process.

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Benefits of a Model

It makes it easier for all counterparts and promotes the consensus among them by requiring the agreement on the rules instead of decision.

Model can increase the defensibility of the decisions by transparency and agreed logic behind the model itself.

It allows organization to perform “what if” analyses based on the records and improve, optimize the model by learning from the past.

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Decision Models

[1]

Decision analysis is a theory and collection of associated methods for making decisions under uncertainty.

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Decision Models

The approach involves constructing and analyzing a model of the decision problem to identify the choice, or sequence of choices, leading to outcomes most consistent with the preferences of the decision maker.

[4]

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Constructing a Project Selection Model

As it has already been mentioned that there are a lot of merits, factors, indicators, approaches, which possibly can be used as part of your model, you may find this study as a structured approach to develop a model that suits exactly to your or an organization’s needs.

In case you find some steps too structured or complicated feel free to simplify it accordingly to your needs.

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By following the steps you can establish a model or Decision Support System (DSS) to Select Projects in your organization.

The facts and the suggestions provided in this study supposed to be useful regardless either you are working on a formula in a spreadsheet or an Enterprise Solution.

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There is where our model should fit

[3]

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Constructing Hybrid Parametric Project Selection Model

We will be constructing a model by keeping it simple but also referring to possible complications and alternatives.

The Model will be combination of known methods and mainly based on weighted scoring method with extended capabilities.

It would be possible to implement this model by a simple tool and it should be evolving by the time and reach to capability to decide itself when the all information (parameters) provided accurately but it requires improvements and validation to achieve this; therefore better to use it as a pre-decision source and make the final decision as a committee or a human being until the desired maturity level has been reached.

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Hybrid Parametric Selection Model

Please see the scope and the each stages in order to establish your model.

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Collecting Project Information

This phase is basically for collecting, gathering as much information as possible and storing them into your Project DB.

It is important the break down the information in a structured way and in detail to be able to use all the possible indicators.

The level of the information that you need to breakdown depends on your intention that you are planning to use in the further stages.

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With other words you will be limited by the level of the information that you can gather in this stage when you are designing your decision model.

The level that you can set in this stage is the maximum detail level for all projects that you can gather. The information should be available for all the projects. You can not consider any information as a criteria (parameter) if you can not compare all the projects for this specific information field.

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Very simple sample of the project data.

It is possible to set main subjects in this phase by summarizing the information gathered.

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Defining Criteria and Weights

You can develop, choose your criteria (input parameters for the decision problem) based on the extraction from the previous step.

Then you need to decide on weights by evaluating corporate objectives. It has been suggested, to complete this task as a group or involvement of the decision committee, based on the best practice.

You should also decide the weights itself and values of them.

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There are a lot of options that you can consider to implement for your model in this stage.

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You can introduce importance and weights per your needs. It is possible to extend or minimize the list or use some figures based on any prioritization theory.

More accurate results you can achieve while you are indicating more Corporate specific criteria in to model.

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Differently from most of the known models I would suggest weighting profiles as well.

You can weight members of decision committee for each subject in order to reflect and balance subject matter expertise to selection decisions.

[1]

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The impact on the decision from different members might be limited or maximized in that way.

For instance, CEO may have maximum weight on Strategy related subjects while it is minimum or 0 in a specific technical area.

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Constructing Quantitative Indicators

Once you have completed your criteria list then you can decide what calculations you need. You may have some figures but these figures should be transformed to meaningful values in order to be decision variable.

For instance, PV and Interest Rate to NPV. Definitions of the outputs for the input parameters should be finalized in this phase.

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It is also possible to leverage your decision logic by additional screening process as illustrated in slides 13 and 18.

Use some of the criteria in your list for screening to establish this process. You can eliminate some of the projects and make ranking easier.

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Develop your Decision Logic

It is time to complete the Logic in order to allow you to get ranked project list based on the prioritization that you have designed in the previous phases.

Although the transformations have been completed in the previous phase; however you still need to describe the decision logic.

Consider if you need any further transformation to compare the figures among the projects. You may find some important indicators are missing and review the previous phases is needed.

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You may have a formula of the grant total and/or well defined comparisons at the end of this stage.

Remember that different orders in calculations possibly directs you to different results.

We have selected the all criteria we need to use for decision.

Defined and calculated some parameters for analysis.

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Probably all committee members provided their input.

As a results now we have all the selected criteria and the results ready to compare and decide.

There are couple of possible options again how to make the final decision.

We can implement AHP* or Integer Programming if you transformed all the parameters to integer results or you can decide by a brainstorming with the committee.

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Implementation of Model

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As it has been discussed and built during this study you can find a very simple implementation in the previous slide.

The weights that we have defined earlier for profiles and the Subjects have been used. (Please refer to slides 21-22-23)

Assumed that a screening process in place and some of the candidates have already been eliminated.

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As you can also see again a simple calculation has been indicated for final decision. (Comparison)

We are in the point to decide. As discussed before in that point depending on the maturity of the tool; we can decide based on results or review and have the final word as a committee.

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Evaluation of the Results and Feedback

You should continuously review the results and design your evaluation process to optimize your decision support system and model.

Very common result and feedback could be reviewing and editing the weights for some of the profiles based on the results.

Weights for some subjects may need to be reviewed if the Corporate Strategy or Financial Expectations or Processes have been changed.

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Model Controlling and Improvement

Implementation and verification of the necessary changes initiated in evaluation phase.

This change might be consists of adding/removing a criterion, new formula for a output parameter, using a different set of parameters in Decision Logic,..,etc.

You may decide to make some changes on the model itself as a result of this process.

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Suggestions

Consider project relations once your model met the expected quality.

When you are designing and/or optimizing your model, make a change on one variable at a time to ensure the impact is accurate.

If you are able to use any integer programming or AHP* consider using your budget and/or approved cash flow as a input parameter to achieve better results from the model.

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References

1. http://www.prioritysystem.com

2. Program Portfolio Alignment, Edgardo Gonzalez

3. Building Project Management through Strategic Alignment, Fadi Samara

4. http://www.tutorialspoint.com

5. Project Selection Processes, Criteria and Methods, Ersen Celebi

project selection model

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